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2016 (12) TMI 457 - ITAT CHENNAI

2016 (12) TMI 457 - ITAT CHENNAI - TMI - Benefits of indexation while working out capital gains - claim not allowed from the year in which it inherited the property - asset deemed to have held - Held that:- For the purpose of indexation, the period of holding of the donor has also to be considered. We are therefore, of the opinion that assessee was eligible for the claim. See Commissioner of Income-tax Versus Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT ] - Decided in favour of assesse .....

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ter had sold a property wherein bearing 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 g .....

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ex relevant to financial 1981-82 which was not in accordance with law. He reworked long term capital gains against the original long term capital gains of E6,40,363/- admitted by the assessee. Assessing Officer worked out long term capital gains as E18,00469/- resulting an addition of E11,60,106/-. 3. Assessee moved in appeal before ld. Commissioner of Income Tax (Appeals) but did not meet with any success. 4. Now before us, ld. Authorised Representative strongly assailing the judgment of Hon bl .....

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ed. 5. Per contra, ld. Departmental Representative strongly supported the orders of the authorities below. 6. We have considered the rival contentions and the orders of the authorities below. Hon ble Bombay High Court in the case Manjula J. Shah (supra) held as under:- 16. For better 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 ful .....

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es in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words 'cost of acquisition' and 'cost of any improvement', the words 'indexed cost of acquisition' and 'indexed cost of any improvement' had respectively been substituted : . . . Explanation.-For the purposes of this section,- . . . . (iii) 'indexed cost of acquisition' means an amount which bears to the cost of acquisi .....

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the year in which the improvement to the asset took place ; (v) 'cost inflation index', in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent. of average rise in the consumer price index for urban non manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf." 17. It is the contention of the Revenue that since the indexed cost o .....

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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 the expression "held by the assessee" is not defined under section 48 of the Act, that expression has to be understood as defined under section 2 of the Act. Explanation 1(i)(b) to section 2(42A) of t .....

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sset as a long-term capital asset. If the long-term capital gains liability has to be computed under section 48 of the Act by treating that the assessee held the capital asset from January 29, 1993, then, naturally in determining the indexed cost of acquisition under section 48 of the Act, the assessee must be treated to have held the asset from January 29, 1993, and, accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. 19. If the a .....

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ed 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 ap .....

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ogether with sections 48 and 49 of the Act, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset, inter alia, acquired by an assessee under a gift or will as provided under section 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the objec .....

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cation in clause (iii) of the Explanation to section 48 of 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 i .....

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8 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 capital gains tax which is not intended by the Legislature. Therefore, the argument of the Revenue which runs counter to the legislative intent cannot be accepted. 22. Apart fro .....

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by the previous owner in the case of an assessee covered under section 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under 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 previ .....

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