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TMI Blog2016 (12) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... door no.199, New No.90, Govindappa Naicken Street, Chennai measuring one ground and 334 sq.ft on 18.04.2011 for a consideration of E87,00,000/-, assesses's share of sale consideration E21,75,000/-. While computing long term capital gains, assessee took the cost of land and building with the base price of financial year 1981-82 and cost inflation index was accordingly applied. Assessee had inherited the said property through a will dated 21.07.2001 of his grandmother Smt. Durgambal Gollapuddi. Smt Durgambal Gollapuddi had expired on 05.09.2001. It seems Smt. Durgambal Gollapuddi had held this land since long. Ld. Assessing Officer was of the opinion that by virtue of definition Indexed cost of acquisition given to Explanation (iii) to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter appreciation of the dispute, we quote the relevant part of section 48 herein : "48. Mode of computation.-The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the asset and the cost of any improvement thereto : . . . Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Explanation to section 48 of the Act has to be determined with reference to the cost inflation index for the first year in which the asset was held by the assessee and, in the present case, as the assessee held the asset with effect from February 1, 2003, the first year of holding the asset would be the financial year 2002-03 and, accordingly, the cost inflation index for 2002- 03 would be applicable in determining the indexed cost of acquisition. 18. We see no merit in the above contention. As rightly contended by Mr.Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was "held by the assessee". Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the deemed fiction contained in Explanation 1(i)(b) to section 2(42A) and section 49(1)(ii) of the Act, the assessee is deemed to have held the asset from January 29, 1993, and deemed to have incurred the cost of acquisition and, accordingly, made liable for the long-term capital gains tax. Therefore, when the Legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under section 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of Revenue that the fiction contained in Explanation 1(i)(b) to section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act that the words "asset was held by the assessee" has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i)(b) to section 2(42A) of the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. 23. The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per CBDT Circular No. 636, dated August 31, 1992 (see [1992] 198 ITR (St.) 1 ) a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides 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 cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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