TMI Blog2016 (11) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, direct the AO to re-compute the capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82. Hence, we uphold the order of Ld. CIT(A) on this point and this ground of Revenue’s appeal is dismissed. - ITA No.2864/Kol/2013 - - - Dated:- 19-10-2016 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant Md. Ghayas Uddin, JCIT-SR-DR For The Respondent Shri I. Bnerjee, FCA ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XIV, Kolkata dated 10.09.2013. Assessment was framed by ITO Ward-23(3), Kolkata u/s 143(3)/263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 14.12.2012 for assessment year 2007-08. The grounds raised by the Revenue per its appeal are as under:- The Ld. CIT(Appeals) had erred in law as well as in facts by giving relief to the assessee on the ground of Cos Inflation Index factor, that in the event of adoption of Fair Market Value of 1981, the Cost Inflation Index factor of 1981 (i.e. 100) could only be taken, ignoring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * 564,862.42 *486500 x 519 447 (FY 2002-03) 5622710.000* * 1083375 x 519 100 (FY 1981) Resultant LT capital gain 7146655.00 2491952/- Section 54EC deduction availed of by the appellant-investment in . .. bond for ₹ 2500000/- 2491952/- 2491952/- Taxable L.T capital gain 4,646,655.21 NIL From the above, it is clear that AO has disregarded the valuation report of the assessee for valuing the property as stood on 01.04.1981 and also disregarded the cost inflation index factor taken by assessee for the year 1981. The AO has taken the DVO s Valuation Report as on 1.4.1981 and cost inflation index of the year when the property was first held by the assessee i.e. 447 for the financial year 2002-03. In that view of the matter, AO worked out the LTCG taxable in the hands of assessee for ₹46,46,655/-. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT(A) submitted that reference made by AO to the DVO u/s 55A of the Act for the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Gain accordingly. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. Before us Ld. DR submitted that property in question was inherited in the FY 2002-03 and therefore the cost inflation index for that year should be adopted. He further submitted that the AO is very much authorized to refer the matter to DVO in terms of provision of Sec. 55A of the Act. Ld. DR further submitted that assessee intentionally has shown valuation of the property as on 01.04.1981 at a higher value with the motive of avoiding capital gains. Therefore, the action of AO for making the reference to DVO is within the provision of law. In this connection, Ld. DR relied on the judgment of Hon'ble jurisdictional High Court in the case of Nirmal Kumar Ravindra Kumar-HUF v. CIT (2016) 70 taxmann.com 339 (Cal), where the Hon'ble jurisdictional High Court has held:- Section 55A of the Income-tax Act, 1961 capital gains reference to Valuation Officer (General) Assessment year 1996-97 whether clause (b)(ii) to section 55A empowers Assessing Officer to make reference to DVO where in his opinion fair market value estimated by assessee is not proper Held, ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of capital gains has to be made in accordance with section 48 and in particular explanation (iii), which provides as follows:- (iii) indexed cost of acquisition means 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 1st day of April, 1981, whichever is later Mr. Agarwal is correct when he submitted that the benefit of cost inflation index going by clause (iii) of the Explanation quoted above should be available to the assessee from the year 1999 when she inherited the property which was in fact the first year of her inheritance. That can certainly be one way of looking at it. But if a harmonious construction is to be given then reference has to be made to the other provisions contained in the Act. Section 2(42A) defines short term capital asset. Clause (b) of Explanation (1) to Section 2(42A) provides as follows:- (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of any improvement thereto. Term cost of acquisition of the asset is explained in Explanation (iii) to section 48. In terms of such explanation, indexed cost of acquisition 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 1st day of April, 1981, whichever is later. In simple words therefore for an asset acquired prior to 1.4.1981 the indexed cost of acquisition would be the cost of acquisition multiplied by the ratio of the Cost Inflation Index in the year in which assessee s asset is transferred to the Cost of Inflation Index for the year beginning on 1.4.1981. It was therefore, that the Tribunal in our opinion correctly held that the indexed cost of acquisition shall have to be worked out with reference to 1.4.1981, since in the present case the asset was acquired by the previous owner of the property. Learned counsel for the Revenue however, submitted that such interpretation would fail to take into account the expression Cost Inflation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the Will . Mr. Murarka has also relied upon a judgment of C.I.T Vs. Manjula J. Shah reported in (2013) 355 ITR 474 (Bom) and referred to paragraphs 21 to 24 of the judgement which are as under:- 21) 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 counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under section 2 of the Act. In section 48 of the Act, the expression asset held by the assessee is not defined and, therefore, in the absence of any intention to the contrary the expression asset held by the assessee in clause (iii) of the Explanation to section 48 of the Act has to be construed in consonance with the meaning given in section 2(42A) of the Act. If the meaning given in section 2(42A) is not adopted in construing the words used in section 48 of the Act, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in arises only when the capital asset is actually transferred by the successor. It is only when the ultimate successor transfers the capital asset for a consideration the capital gains are assessed to tax. In assessing capital gain in the hands of successor, date of acquisition and period of holding, is determined taking into consideration the date on which and the cost of which the first owner acquires the capital asset. It is for this reason section 2(42A) uses the expression in determining the period for which capital asset is held by the assessee . Sec. 48 of the IT Act incorporates computation mechanism for qualifying the capital gain and therefore the expressions used in the computation formula should be given schematic interpretation. The scheme of taxation of capital gain can however, be understood by applying provisions of ss. 2(42A), 2(47), 47(ii), 48, 49(i)(ii) and 55(2)(b)(ii) of the Act. As per the provisions of these sections, where an assessee sells an inherited capital asset, the capital gain is computed with reference to the period of holding and cost of acquisition incurred by the previous owner. It is, so because in fact the successor assessee do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st under s. 55(2)(b)(ii) of the Act. Under s. 2(42A) the period of holding of the capital asset in the hands of the assessee was the period commencing from 1st April, 1981 till the date of transfer. It is, therefore, quite clear that as on 1st April, 1981 the asset was statutorily considered to be held, by the assessee under s. 55(2)(b)(ii) r/w s. 2(42A) of the Act. In our considered opinion therefore, the cost inflation index applicable for financial year 1981-82 and not to financial year 2002-03 should have been applied by the AO. A similar view was taken by Chandigarh Bench of the Tribunal in the case of Smt. Pushpa Sofat Vs. ITO (2004) 89 TTJ (Chd) 499. In that case house property was inherited by the assessee from her father was sold in asst. yr. 1993-94. The father of the assessee acquired the property in 1972 and therefore, the assessee opted for FMV of 1st April, 1981 to be the cost of acquisition. The assessee computed the indexed cost of acquisition with reference to the cost of inflation index of 1st April, 1981 being 100 per cent. Assessee s father expired on 17th Feb., 1991 and the AO allowed the indexation of cost with reference to the cost inflation index of FY 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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