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2016 (4) TMI 709

r long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis.

In the case of Raja Malwinder Singh (2011 (1) TMI 775 - PUNAJB AND HARYANA HIGH COURT ) has held that even in a case where the cost of acquisition cannot be ascertained, section 55(3) of the Act statutorily prescribes the cost to be equal to the market value on the date of acquisition, that this being the position, capital gains are not excluded even on the plea that the value of the asset in respect of which capital gains are to be charged was incapable of being ascertained, that the view based on the assumption that where the market value cannot be ascertained, capital gains cannot be applied, is not correct being against the statutory scheme, that if the market value can be ascertained, it has to be taken to be equal thereto and if the value cannot be ascertained, it has to be equal to the market value on a specified date at the option of the assessee.

Now, coming back to the facts of the c .....

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cquisition shall be nil in the hands of the assessee, that the entire sale consideration of ₹ 1. 83 crores had to be assessed to tax under the head LTCG, that the fair market value of the tenancy right as on 01. 04. 1981 could not be considered for determining the tax liability, that the clause (b) to section 55(2) was not applicable in respect of the tenancy right while computing the cost of acquisition. In view of the direction of the JCIT the AO assessed the entire sale consideration of ₹ 1, 83, 33, 334/- as LTCG. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). It was contended that the assessee inherited half share in the tenancy rights along with his brother, that the fact of tenancy it was not in dispute, that he had received for transfer of his half share of inherited tenancy right a consideration of ₹ 1. 83 crores, that the consideration received by him fell under the exempted portion of section 55 (a) (2) (ii) of the act, that section 55 (2) was amended with effect from 1/4/1995 to supersede the certain exclusions, that the new provisions provided that for the purpose of section 49 and 48 th .....

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that the assessee had acquired the inherited tenancy right in property from his father, that the provisions of sec 55(2)(a) would be applicable. He referred to provisions of sec. 48, 49 & 55(2) of the Act and held that the assessee had exercised its option to substitute the FMV as on 1. 4. 1981, that the FMV as per valuation done by registered valuer had to be considered for indexation. The FAA referred to the case of Vijay Rathore (204 taxation 193)and held that property in question was acquired by the aa by way of inheritance from his father, who held it prior to 1981, that as per the provisions of section 55(2)(b)(i) of the Act the market value as on 01. 04. 81 as determined by the valuer, was to be considered for computing indexed cost. He also referred to the case of Manjula J Shah (35SOT105) and directed the AO to re-compute indexed cost. He referred to the value determined by the valuer as on 01. 04. 48 lacs and indexed it to ₹ 79, 81, 237/-. Accordingly, he held that LTCG would be computed at ₹ 1, 03, 52, 098/-(1, 83, 33, 334/(-)Rs. 79, 81, 235/-)as against ₹ 1. 83, determined by the AO. 4. During the curse of hearing before us, the Departmental Repres .....

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uses (i) to (iv) of the section. It further provides that the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. iv. The option under section 55 to take the cost of acquisition of the asset as the fair market value of the asset as on 01. 01. 1981, or at the actual cost incurred by the assessee, at the option of the assessee, is independent of section 48 which deals with mode of computation. It is only after working out the cost of acquisition within the meaning of section 55 that the capital gains could be computed under section 48. 5. 1. It would be useful the refer to the matter of Mina Deogun(375ITR586). The facts of the case were as under that a residential house situate at premises No. 47, Golf Links, New Delhi, was purchased by Sardar Pratap Singh on 16. 04. 1958, that he died on 29. 06. 1968, that the aforesaid property devolved on her widow, who died on 16. 09. 1999, that, the assessee and her three sisters succeeded to the property in equal shares. During the financial y .....

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e previous owner, that is to say, the mother, had not died and if she herself had sold the property in the year 2003, she would have got the benefit of indexation on the fair market value as at 1st April, 1981. 12. We are supported in our view by a judgment of the Gujarat High Court in the case of CIT v. Rajesh Vitthalbhai Patel reported in[2013]37 Taxmann. com 439 wherein the following views were expressed : "7. Under section 48 of the Act, thus capital gain is computed by deducting from the full value of the consideration received or accruing as a result of the transfer, the amounts of expenditure incurred wholly and exclusively in connection with such transfer, the cost of acquisition of the asset and the cost of any improvement thereto. The term 'cost of acquisition of the asset' is explained in Explanation (iii) to section 48. In terms of such Explanation, indexed cost of acquisi tion would be an amount which bears to the cost of acquisition the same proportion as the cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1 .....

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uld take care of any improvement on the capital asset to be included for the cost of acquisition. It is precisely because such improvement referred to in section 48 would have reference only to that made by the previous owner that the additional provision had to be made in the deeming fiction provided in subsection (1) of section 49. Further, the interpretation sought to be given by the Revenue would be unac ceptable because there is no provision under which the cost of acqui sition in the hands of the assessee in cases such as gift on the date of acquisition of the property can be made and found in the Act. A seri ous road-block would be created if such property is acquired through Will and would, therefore, have no reference to its actual cost on the date of operation of the Will. " 13. Mr. Murarka has also relied upon a judgment of CIT v. Manjula J. Shah reported in [2013] 355 ITR 474(Bom)and referred to paragraphs 21 to 24 of the judgment which are as under (page 482) : "To accept the contention of the Revenue that the words used in clause (iii) of the Explanation to section 48 of the Act has to be read by ignoring the provisions contained in section 2 of the Act runs .....

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ovides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long-term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. Since the assessee, in the present case, is held liable for long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. " 14. For the aforesaid reasons, the second question is answered in the affirmative and against the Revenue. 5. 2. In the case of Raja Malwinder Singh( .....

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