TMI Blog2018 (8) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... ax-57, Mumbai [ld. CIT] passed under section 143(3) dated 23.11.2015 for Assessment Year 2011-12. The Revenue has raised the following grounds of appeal: l. Whether in facts and circumstances of the case and in law, the learned CIT(A) is correct in directing to grant indexation benefit for the period and during which property was held by earlier owner, whereas Explanation (iii) to Section 48 categorically restricts Indexation benefit from the first year in which the asset was held by the assessee. 2. The appellant prays that the order of the Ld. CIT(A) on the ground(s) be set aside and that of the Assessing Officer be restored. 2. Brief facts and of the case are that the assessee filed return of income declaring taxable income of ₹ 14,31,06,210/- for Assessment Year 2011- 12. The assessment was completed on 07.03.2014 under section 143(3). The Assessing Officer while passing the assessment order made the addition of Long Term Capital Gain (LTCG) of ₹ 15,98,01,636/- on account of income earned on sale of share in land at Plot No. 91, Nepean Sea Road, Mumbai. On appeal before the ld. CIT (A), the entire addition was deleted. The ld. CIT (A) while allowing appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax under the head 'capital gains'. Where the gains arise on transfer of a short term capital asset as defined under Section 2(42A) of the Act, the gains are taxed as short term capital gains. Where the gains arise on transfer of long term capital asset, as defined under Section 2(29A) of the Act, the said gains are taxed as long term capital gains. Section 47(iii) of the Act provides that where a capital asset is transferred under a gift or will, then, such transaction shall not be regarded as transfer and in such a case the liability to pay capital gains tax would not arise. Liability to pay capital gains tax, however, would arise when the assessee transfers the capital asset acquired under a gift or will for valuable consideration. 11. The mode and the manner of computing the capital gains is provided under Section 48 of the Act. As per Section 48, the income chargeable under the head capital gains is liable to be computed by deducting from the full value of the consideration received on transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital asset and accordingly, liable for long term capital gains tax. Thus, by applying the deeming provision contained in the Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the asset from 29/1/1993 to 30/6/2003 (by including the period for which the said asset was held by the previous owner) and accordingly held liable for long term capital gains tax. 14. It is not disputed by the revenue that the assessee must be deemed to have held the capital asset from 29/1/1993 (though actually held from 1/2/2003) by applying the Explanation 1(i)(b) to Section 2(42A) of the Act and hence liable for long term capital gains tax. However, the revenue disputes the applicability of the deemed date of holding the asset from 29/1/1993 while determining the indexed cost of acquisition under clause (iii) of the Explanation to Section 48 of the Act. 15. For better appreciation of the dispute, we quote the relevant part of Section 48 herein :- Mode of Computation. 48. 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 resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 17. 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 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 the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication 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. 20. 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exed 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. 23. 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. 24. In the result, we hold that the ITAT was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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