S.Krishnan, Chennai vs Assessee

This appeal of the assessee is directed against the order of

the Commissioner of Income Tax (Appeals) - VII, Chennai, dated

09.05.2014 and pertains to assessment year 2006-07. The only 2 I.T.A. No.2075/Mds/14

issue arises for consideration is with regard to computation of

capital gain.

2. Notice was served to the assessee by RPAD. However, the

assessee has filed written submission with a request to consider the

same to pass an order on merit. Accordingly, we heard the Ld.

Departmental Representative and considered the written

submission filed by the assessee and proceed to dispose the

appeal on merit.

3. In the written submission, the assessee claimed that he

received 75 cents of land by gift through a settlement deed dated

23.01.2004. The mother of the assessee purchased the said land

on 25.09.1957 by means of a registered sale deed No.2068 of

1957. The assessee transferred the said land and claimed

indexation as on 01.04.1981. However, the Assessing Officer

rejected the claim of the assessee and allowed indexation only from

23.01.2004 when the assessee became the owner. The assessee,

by placing reliance on the judgement of the Bombay High Court in

CIT v. Manjula J. Shah (2012) (204 Taxman 691), claimed in the

written submission filed before this Tribunal that the indexation has

to be made from 01.04.1981and not from 23.01.2004. 3 I.T.A. No.2075/Mds/14

4. On the contrary, the Ld. D.R. submitted that under

Explanation (iii) to Section 48 of the Income-tax Act, 1961 (in short

"the Act), the indexed cost of acquisition has to be made from the

first year in which the asset was held by the assessee. In the

present case, the asset was held by the assessee only with effect

from 23.01.2004. According to the Ld. D.R., the assessee obtained

the 75 cents of land through settlement deed only from 23.01.2004

which falls in the financial year 2003-04. Therefore, for the purpose

of indexation, the cost of the asset has to be adopted on 01.04.1981

assumes significant and not for indexed cost of acquisition. This

distinction is important for working of the capital gain.

5. We have heard the Ld. D.R. and gone through the written

submission filed by the assessee and material available on record.

It is not in dispute that the assessee obtained 75 cents of land from

his mother by means of settlement deed dated 23.01.2004. The

assessee also sold the land during the year under consideration

and claimed capital gain by adopting the value as on 01.04.1981.

The Assessing Officer disallowed the claim on the ground that the

asset was owned only on 23.01.2004. Therefore, the value as on

23.01.2004 is to be adopted in respect of the property received by

the assessee from his mother. We find that the Bombay High Court 4 I.T.A. No.2075/Mds/14

in the case of Manjula J. Shah (supra) had an occasion to consider

an identical issue. The Bombay High Court, after considering the

provisions of Section 48 of the Act, has observed as follows:-

"17. We see no merit in the above contention. As rightly contended by Mr. Rai, Ld.counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost of 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 by 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, the assessee is deemed to have held the asset 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 29.1.1993, 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 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition.

18. If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in computing the capital gains under Section 48 of the Act is accepted, then, the assessee would not be liable for long term capital gains tax, because it is only by applying 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 29/1/1993 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 5 I.T.A. No.2075/Mds/14 Section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under Section 48 of the Act."

6. In view of the above observation of the Bombay High Court

on identical issue, this Tribunal is of the considered opinion that the

indexed cost of acquisition has to be computed with effect from

01.04.1981. Accordingly, the orders of the lower authorities are set

aside and the Assessing Officer is directed to compute the indexed

cost of acquisition from 01.04.1981 in view of the observation of the

Bombay High Court in the case of Manjula J. Shah (supra).

7. In the result, the appeal of the assessee is allowed.

Order pronounced on 15th May, 2015 at Chennai.

sd/- sd/- (A.Mohan Alankamony) (N.R.S. Ganesan) (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) लेखा सद य/Accountant Member या यक सद य/Judicial Member

चे नई/Chennai, th 5दनांक/Dated, the 15 May, 2015. Kri.

आदे श क/ - त6ल7प अ8े7षत/Copy to: 1. अपीलाथ,/Appellant 2. -.यथ,/Respondent 3. आयकर आयु9त (अपील)/CIT(A)-VII, Chennai

4. आयकर आयु9त/CIT (International Taxation), Chennai

5. 7वभागीय - त न ध/DR

6. गाड( फाईल/GF.