Smt. Bhoote Meenakshi, V. ACIT,

ITA 14/BANG/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7469 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value; Valuation report
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 08 /BANG/201 4 ASSESSMENT YEAR : 20 07 - 08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2(1), BANGALORE. VS. SMT. BHOOTE MEENAKSHI, NO. 267, MUTHURAYA NAGAR EXTENSION, SAPTHAGIRI LAYOUT, R.V. COLLEGE POST, BANGALORE 560 059. PAN: ANHPM 8984D APPELLANT RESPONDENT ITA NO.14/BANG/2014 ASSESSMENT YEAR : 2007 - 08 SMT. BHOOTE MEENAKSHI, NO. 267, MUTHURAYA NAGAR EXTENSION, SAPTHAGIRI LAYOUT, R.V. COLLEGE POST, BANGALORE 560 059. PAN: ANHPM 8984D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI NARENDRA SHARMA, ADVOCATE & SHRI RAVISHANKAR, ADVOCATE REVENUE BY : SHRI L.V. BHASKAR REDDY, ADDL. CIT (DR) DATE OF HEARING : 05 . 10 .201 7 DATE OF PRONOUNCEMENT : 13 .10 .2017 O R D E R PER SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 14/BANG/2014 IS AN APPEAL BY THE ASSESSEE W HILE ITA NO. 08/BANG/2014 IS AN APPEAL BY THE REVENUE. BOTH THE SE APPEALS ARE DIRECTED AGAINST ITA NOS. 08 & 14/BANG/2014 PAGE 2 OF 15 THE ORDER DATED 30.09.2013 OF CIT(A)-I, BANGALORE R ELATING TO ASSESSMENT YEAR 2007-08. 2. THE DISPUTE IN BOTH THESE APPEALS IS WITH REGARD TO THE COMPUTATION OF LONG TERM CAPITAL GAIN ON SALE OF A PROPERTY AT KORAMANGALA, BANGALORE BY THE ASSESSEE. 3. THE ASSESSEE IS AN INDIVIDUAL. DURING THE PREVI OUS YEAR SHE SOLD A PROPERTY AT KORAMANGALA FOR A SALE CONSIDERATION OF RS. 6,15,00 ,000/-. THE PROPERTY AT KORAMANGALA WHICH WAS SOLD BY THE ASSESSEE MEASURED ABOUT 25,343 SQ.FT. OUT OF THE ABOVE AN EXTENT OF 19,200 SQ.FT. WAS PURCHASED BY THE ASSESSEES HUSBAND IN THE YEAR 1958. THE REMAINING LAND OF 6,143 SQ.FT. WAS PURCHASED BY ASSESSEE FROM BDA. THERE WERE DISPUTES WITH REGARD TO THE PROPER TY AS THE SAME WAS SUBJECT MATTER OF ACQUISITION BY THE BDA. BESIDES THE ABOV E, THE PROPERTY WAS ORIGINALLY AN INDUSTRIAL SITE ON WHICH THE ASSESSEES HUSBAND HAD CONSTRUCTED STRUCTURES. THE STRUCTURES WERE LET OUT TO ONE SMT. RUDRAMMA AND HE R LEGAL HEIRS. THERE WERE DISPUTES WITH THE TENANT ALSO. IT IS IN THIS STATE OF AFFAIRS THAT THE PROPERTY IN QUESTION WAS SOLD BY THE ASSESSEE AFTER SETTLING ALL THE LIT IGATIONS. 4. THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN ON SALE OF THE PROPERTY. THE COMPUTATION OF CAPITAL GAIN AS MADE AND GIVEN BY TH E ASSESSEE AND THE COMPUTATION OF CAPITAL GAINS DONE BY THE AO WAS AS FOLLOWS. PARTICULARS PARTICULARS OF CALCULATION OF CAPITAL GAINS BY ASSESSEE PARTICULARS OF CALCULATION OF CAPITAL GAINS BY THE LEARNED A.O. ADDITIONS / DISALLOWANCE MADE BY A.O. SALE CONSIDERATION 6,15,00,000/ - 6,15,00,000/ - - LESS: COST OF ADDITIONAL PIECE OF LAND ALLOTTED BY BDA 2,02,70,155/- 2,02,70,155/- - 4,12,29,845/ - 4, 12,29,845/ - - LESS: EXPENSES INCURRED IN RELATION TO TRANSFER: BROKERAGE PAID RS. 80,00,000 LEGAL FEE RS. 5,00,000 85,00,000/- 25,61,492/- 59,35,508/- 3,27,29,845/ - 3,86,68,353/ - - ITA NOS. 08 & 14/BANG/2014 PAGE 3 OF 15 LESS: PAYMENTS MADE TO AGREEMENT HOLDERS FOR CANCELLATION OF AGREEMENTS 1,96,25,000/- NIL 1,96,25,000/- NET CONSIDERATION 1,31,04,845/ - 3,86,68,353/ - - LESS: COST OF ACQUISITION 99,64,800/ - 3,84,741/ - 95,80,059/ - NET GAIN 31,40,045/ - 3,82,83,612/ - - LESS: EXEMPTION CLAIMED U/S. 54F OF THE ACT [RS. 65 LAKHS WAS INVESTED IN CONSTRUCTION OF HOUSE] PROPORTIONATE EXEMPTION 15,57,462/- 10,40,000/- 5,17,462/- TOTAL CAPITAL GAIN 15,82,583/ - 3,72,43,612/ - - TOTAL DISALLOWANCE - - 3,56,58,029/ - 5. IT CAN BE SEEN FROM THE ABOVE TABLE THAT THERE WAS A DISPUTE BETWEEN THE ASSESSEE AND THE AO WITH REGARD TO ALLOWING CERTAIN DEDUCTION WHILE COMPUTING CAPITAL GAIN OF EXPENSES INCURRED IN RELATION TO TR ANSFER. THE ASSESSEE HAD CLAIMED BROKERAGE FEES AND LEGAL FEES PAID OF RS. 85 LAKHS WHEREAS THE AO ALLOWED DEDUCTION OF ONLY A SUM OF RS. 25,61,492/-. ANOTHE R DISPUTE WAS WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION, WHILE COMPUTIN G CAPITAL GAINS, OF PAYMENTS MADE TO AGREEMENT HOLDERS FOR GETTING CLEAR AND BET TER TITLE TO THE PROPERTY OF A SUM OF RS. 1,96,25,000/-. THE CLAIM OF THE ASSESSEE FO R DEDUCTION OF THE AFORESAID SUM WAS NOT ALLOWED BY THE AO. ANOTHER AREA OF DISPUTE WAS WITH REGARD TO THE COMPUTATION OF COST OF ACQUISITION OF THE PROPERTY BY THE ASSESSEE AND INDEXED COST OF ACQUISITION. AS FAR AS THE DISPUTES WITH REGARD TO COST OF ACQUISITION IS CONCERNED, WE HAVE ALREADY SEEN THAT THE PROPERTY WAS ACQUIRED BY THE ASSESSEES HUSBAND IN THE YEAR 1958. THE ASSESSEES HUSBAND DIED IN THE YEAR 1994 AND THE ASSESSEE INHERITED THE PROPERTY FROM HER HUSBAND BY WAY OF I NTESTATE SUCCESSION. UNDER THE PROVISIONS OF SECTION 55(2)(B)(I) OF THE INCOME TAX ACT, 1961 (ACT), WHERE THE CAPITAL ASSET BECAME PROPERTY OF THE ASSESSEE BEFORE 01.04. 1981, THE COST OF ACQUISITION OF THE ASSET TO THE ASSESSEE SHALL, AT THE OPTION OF T HE ASSESSEE, BE TAKEN AS THE FAIR MARKET VALUE (FMV) AS ON 01.04.1981. THE ASSESSEE CLAIMED THE FMV AS ON 01.04.1981 AT RS. 100/SQ.FT. THE AO DETERMINED THE FMV AS ON 01.04.1981 AT RS. 10/SQ.FT. ON APPEAL BY THE ASSESSEE THE CIT(A) FIX ED THE FMV AS ON 01.04.1981 AT RS. 50/- PER SQ.FT. IN THE APPEAL BY THE ASSESSEE THE ASSESSEE HAS CHALLENGED THE ORDER OF CIT(A) FIXING THE FMV AS ON 01.04.1981 AT RS. 50/SQ.FT. AND HAS CLAIMED THAT THE SAME SHOULD BE FIXED AT RS. 100/SQ.FT. AS CLAIM ED BY THE ASSESSEE. THE REVENUE ITA NOS. 08 & 14/BANG/2014 PAGE 4 OF 15 IN ITS APPEAL HAS CHALLENGED THE ORDER OF CIT(A) WH EREBY CIT(A) FIXED THE FMV AS ON 01.04.1981 AT RS. 50/SQ.FT. ACCORDING TO THE REVEN UE THE FMV AS ON 01.04.1981 SHOULD HAVE BEEN FIXED AT RS. 10/SQ.FT. AS DONE BY THE AO. 6. WE HAVE ALREADY SEEN THAT THE ASSESSEE ACQUIRED THE PROPERTY BY WAY OF SUCCESSION AS LEGAL HEIR OF HER HUSBAND. UNDER THE SECOND PROVISO TO SECTION 48 THE ASSESSEE CAN CLAIM INDEXED COST OF ACQUISITION AS A DEDUCTION. THE ASSESSEE CLAIMED INDEXED COST FROM 01.04.1981. ACCORDING TO THE AO INDEXED COST OF ACQUISITION CAN BE ALLOWED ONLY FROM THE YEAR 1994 WHEN THE ASSESSEE SUCCEEDED TO THE PROPERTIES OF HER HUSBAND ON INTESTATE SUCCE SSION. ACCORDING TO THE AO INDEXED COST OF ACQUISITION HAS TO BE COMPUTED FOR THE PERIOD FOR WHICH ASSET IS HELD BY THE ASSESSEE. SINCE THE ASSESSEE GOT THE PROPER TY BY WAY OF SUCCESSION ONLY IN THE YEAR 1994, THE AO GAVE INDEXED COST OF ACQUISIT ION FROM 1994. THE CIT(A) HELD THAT THE INDEXED COST OF ACQUISITION HAS TO BE GIVE N FROM THE DATE ON WHICH THE PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER, BECAUS E THE ASSESSEE DID NOT ACQUIRE THE PROPERTY AND GOT THE SAME BY WAY OF SUCCESSION AND THEREFORE COST OF ACQUISITION TO THE PREVIOUS OWNER SHOULD BE ADOPTED. SINCE THE PREVIOUS OWNER ACQUIRED THE PROPERTY PRIOR TO 1.4.1981, THE ASSESSEE WAS ENTITL ED TO ADOPT THE INDEXED COST OF ACQUISITION FROM 1.4.1981. THE REVENUE IN ITS APPE AL HAS CHALLENGED THE ORDER OF CIT(A) ALLOWING INDEXATION BENEFIT FROM 01.04.1981. WITH THIS BACKGROUND WE WILL NOW CONSIDER THE ISSUES RAISED BY THE REVENUE AND A SSESSEE IN THEIR RESPECTIVE APPEALS. 7. THE COMMON ISSUE THAT ARISES FOR CONSIDERATION IN BOTH THE APPEAL OF THE ASSESSEE AND REVENUE IS WITH REGARD TO THE DETERMIN ATION OF FMV AS ON 01.04.1981. IT IS NOT IN DISPUTE THAT THE ASSESSEE FILED THE RE PORT OF REGISTERED VALUER TO SUBSTANTIATE HER CLAIM OF FMV AS ON 01.04.1981 AT R S. 100/SQ.FT. THE AO SUMMONED THE APPROVED VALUER AND EXAMINED HIM AND C ONFRONTED HIM WITH REGARD TO THE GUIDELINE VALUES PREVAILING IN THE VICINITY OF KORAMANGALA IN THE YEAR 1981. THE REGISTERED VALUER ON A QUERY BY THE AO SUBMITTE D THAT HIS VALUATION WAS BASED ON THE RATES PREVALENT IN 1985 AND SINCE HE IS NOW BEING CONFRONTED WITH SOME MARKET RATES PREVALENT IN THE YEAR 1982 IT WOULD BE APPROPRIATE TO APPLY THOSE RATES AS THOSE DATES ARE NEARER TO 01.04.1981. THE FOLLO WING WERE THE QUESTIONS AND THE ITA NOS. 08 & 14/BANG/2014 PAGE 5 OF 15 ANSWERS PUT TO THE REGISTERED VALUER BY THE AO AND THE ANSWERS GIVEN BY THE REGISTERED VALUER. 4) I AM SHOWING YOU THE REPORT DATED 21/07/2008, KI NDLY EXPLAIN WHAT IS THERE ANY? ANS: THIS IS THE VALUATION REPORT GIVEN BY ME. SHRI RAJARAM APPROACHED ME ABOUT TWO WEEKS PRIOR TO 21/07/2009 A ND INSPECTION WAS DONE ON THE VACANT SITE ON 21/07/200 9. THE DATE IS 21/07/2009 AND IT MAY BE CROSS CHECKED IN M Y DECLARATION AND ALSO ON INSPECTION, REFERENCE DATE. THIS REPORT HAS BEEN GIVEN BY ME AND FAIR MARKET VALUE AS ON 19 81 FOR THE PROPERTY LOCATED AT KORAMANGALA I BLOCK (WHICH WAS EARLIER III BLOCK, KORAMANGALA)AND I HAVE VALUED THE PROPERTY A T RS.175/- PER SQ.FT.AS THE FAIR MARKET VALUE. FOR THIS I HAVE RELIED UPON THE GUIDANCE VALUE GIVEN BY THE STATE GOVERNMENT IN CIR CULAR NO. RD/268/ESR/84 DATED 07/08/1985, WHERE THE VALUE OF RICHMOND TOWN AND INDIRANAGAR WHICH ARE IN CLOSE VI CINITY AND THEIR VALUE IS AT RS.166/- PER SQ.FT. THE FMV THUS ARRIVED HAS BEEN INTERPOLATED WITH COST INFLATION INDEX ISSUED BY THE GOVERNMENT AND THE MINIMUM GUIDANCE VALUE IS WORKED OUT AT RS.125/- PER SQ.FT. FURTHER, THE VALUE HAS BEEN ARR IVED AT AFTER CONSIDERING FUTURE USAGE AND COMMERCIAL POTENTIALIT Y WHERE HIGH RISE STRUCTURES CAN COME UP. I HAVE RELIED UPO N 1985 CIRCULAR BECAUSE, THERE WAS NO CIRCULAR PRIOR TO TH IS AS PER MY KNOWLEDGE. Q.5 I AM SHOWING YOU THE STATEMENT GOVERNMENT CIRCU LAR NO.329/EST/79 DATED 10/11/1982 AND LETTER FROM SUB- REGISTRAR, KORAMANGALA DATED 16/11/2009. KINDLY GO THROUGH THE CONTENTS AND EXPLAIN WHAT IS THERE IN IT? ANS. IN THE CIRCULAR THE GUIDANCE VALUE PER SQUARE YARD ARE THERE. THE GUIDANCE VALUES OF FOUR LOCALITIES IN TH E VICINITY OF KORAMANGALA ARE AS UNDER: 1. WILSON GARDEN RS. 272/- PER SQUARE YARD 2. UISOOR RS.272/- PER SQUARE YARD 3. DOMLUR RS.216/- PER SQUARE YARD 4. VIVEKNAGAR RS.216/- PER SQUARE YARD. IN THE LETTER OF SUB-REGISTRAR, KORAMANGALA ALONG W ITH THE ANNEXURES, THE PROPERTIES REGISTERED AT KORAMANGALA III BLOCK ARE GIVEN AND THE RATE PER SQ.FT. VARIES FROM RS.10 /- TO RS.22/- PER SQ.FT. Q.6 :KINDLY EXPLAIN, IN VIEW OF THE FACTS GIVEN ABO VE, EXPLAIN YOUR OPINION ABOUT THE FAIR MARKET VALUE AS 1981 IF THERE IS ANY RECONCILIATION WITH RESPECT TO YOUR CERTIFICATE GIV EN EARLIER. ITA NOS. 08 & 14/BANG/2014 PAGE 6 OF 15 ANS. I HAVE GIVEN THE FAIR MARKET VALUE BASED UPON THE MATERIAL AVAILABLE WITH ME, IE., THE CIRCULAR OF 19 85. THE VALUE ARRIVED BY ME HAS A BASIS. HOWEVER, IN VIEW OF THE NEW FACTS BROUGHT TO MY NOTICE AND HAVING A BETTER GUIDE WITH RESPECT TO TIME (CIRCULAR WHICH IS NEARER TO VALUATION DATE) AND PROPERTIES REGISTERED IN THE SAME LOCALITY, I RECONSIDER THAT BASIS ON WHICH THE FAIR MARKET VALUE ARRIVED UPON WILL NOW CHANGE AS THE RATE PER SQ.FT. IS NOW BETWEEN RS.10/- TO RS.22/- PER SQ .FT. AND AS PER GUIDANCE VALUE ABOUT RS.24/- TO RS.30/- PER SQ.FT. NOW, APPLYING THE SAME PRINCIPLES, I CONSIDER THE FAIR MARKET VAL UE OF THE PROPERTY TO BE RS.28/-. THIS IS ARRIVED ON THE BASIS THAT THE PROPERTY BASED ON THE GUIDANCE VALUE OF RS.125/- PE R SQ.FT. WAS VALUED AT RS.175/- TAKING INTO CONSIDERATION VARIAB LES LIKE COMMERCIAL EXPLOITATION, SIZE, LOCATION, FSI ETC. Q.7. I AM SHOWING YOU THE ABSOLUTE SALE DEED DATED 27/09/2006 AND THE NOTES TO THE STATEMENT OF COMPUT ATION DATED 31/07/2007. KINDLY GO THROUGH THIS AND EXPLAI N WHAT IS THERE IN IT? ANS. I HAVE GONE THROUGH THE SALE DEED AND IT IS CL EAR THAT THE PROPERTY WAS ACQUIRED BY CITB AND THE ASSESSEE WAS APPROACHING CITB FOR RECONVEYING THE SAID PROPERTY AND THE PROPERTY WAS FINALLY RECONVEYED TO THE ASSESSEE BY ITS LETTER DATED 15/02/2006. FURTHER, AS PER THE STATEMENT OF INCOME/DECLARATION, IT MAY BE EVIDENCED THAT THE PR OPERTY WAS IN LITIGATION AND ALSO THE OWNER OF THE PROPERTY HA S PAID A LOT OF MONEY FOR VACATING THE PROPERTY. Q.8 IN VIEW OF THE REPLY TO Q.NO.7, DO YOU HAVE ANY THING ELSE TO SAY? ANS. IN VIEW OF THAT PROPERTY LACKING A CLEAR TITLE , THE GUIDANCE VALUE ARRIVED AT Q.6 IS NOT APPLICABLE AND VALUE WI LL BE LESSER AND WILL BE PROPORTIONATE TO THE COMPENSATION PAID / PAYABLE BY BDA AS ON THAT DATE. FURTHER, THE COMPENSATION GIV EN WOULD BE COMMENSURATE WITH THE GUIDANCE VALUE OF THE CITY CORPORATION. Q.9 WHILE GOING THROUGH THE REPLIES GIVEN BY YOU, Y OU HAVE TAKEN ONLY THE GUIDANCE VALUE OF NEIGHBOURING AREAS , KINDLY EXPLAIN WHY YOU HAVE NOT TAKEN THE VALUATION OF KOR AMANGALA. WHY YOU HAVE NOT TAKEN THE ACTUAL REGISTRATIONS IN KORAMANGALA AT THAT TIME? ANS. WHILE GOING THROUGH THE CIRCULARS, IT IS CLEAR THAT THE GUIDANCE VALUE FOR KORAMANGALA IS NOT THERE. I PRES UME THAT THERE WERE NOT MANY TRANSACTIONS AND GUIDANCE VALUE IN KORAMANGALA IS NOT GIVEN. I DID NOT HAVE POSSESSION OF THE ITA NOS. 08 & 14/BANG/2014 PAGE 7 OF 15 DOCUMENTS LIKE YOU HAVE AS PER THE LETTER DATED 16/ 11/2009. Q.10 IN THIS BACK GROUND IE., THE SALE TRANSACTIONS IN KORAMANGALA TAKING PLACE AT RS.10/-TO RS.22/- AND G UIDANCE VALUE IN NEIGHBOURING AREA VARYING FROM RS.24/- TO RS. 30/-, THE PROPERTY BEING ACQUIRED AT AS ON 01/04/1981, THE AS SESSEE NOT IN POSSESSION OF THE PROPERTY AND PROLONGED LITIGAT ION WITH RESPECT TO THIS PROPERTY, DO YOU HAVE ANYTHING TO S AY? ANS. IN VIEW OF THE SALE TRANSACTIONS IN KORAMANGAL A TAKING PLACE AT RS.10/- TO RS.22/- AND GUIDANCE VALUE IN N EIGHBORING AREA VARYING FROM RS.24/- TO RS.30/-, THE PROPERTY BEING ACQUIRED AT AS ON 01/04/1981, THE ASSESSEE NOT IN P OSSESSION OF THE 'PROPERTY AND PROLONGED LITIGATION WITH RESP ECT TO THIS PROPERTY I FEEL THE PROPERTY WOULD NOT EVEN HAVE FE TCHED RS.20/- PER SQ.FT.AS IT WAS NOT IN POSSESSION OF THE ASSESS EE AND IT IN THE POSSESSION OF BDA /CITB, I FEEL THE FMV WOULD B E AROUND THE REGISTRATION VALUE AT THAT TIME AS THE GUIDANCE VALUES WERE NOT AVAILABLE FOR THESE PROPERTIES. 11)DO YOU HAVE ANYTHING ELSE TO SAY? ANS: THIS REPORT WAS PROVIDED BY ME WITH THE MATERI ALS AVAILABLE WITH ME AND THE PERSON APPROACHING ME HAD NOT STATED THAT THERE WAS A LITIGATION WITH RESPECT TO THIS PROPERTY AND THAT THE PROPERTY WAS UNDER ACQUISITION BY BDA/ CITB. 8. BASED ON THE ABOVE REPLIES THE AO HELD THAT THE FMV AS ON 01.04.1981 OF THE PROPERTY SHOULD BE ADOPTED AT RS. 10/SQ.FT. ON APP EAL BY THE ASSESSEE THE CIT(A) HELD THAT THE FMV HAS TO BE ADOPTED AT RS. 50/SQ.FT . THE FOLLOWING WERE THE OBSERVATIONS OF THE CIT(A). 3.11 ACCORDINGLY, THE AO HELD THAT THE MARKET VALUE ADOPTED BY THE APPELLANT IS EXCESSIVE AND NOT IN ACCORDANCE WITH THE GUIDANCE VALUE AS SPECIFIED BY THE STATE GOVERNMENT AND THUS ADOPTED AN AVERAGE COST OF RS.10 PER SQ FT AND FURT HER HELD THAT THERE WAS NO DWELLING HOUSE ON THE SAID PROPERTY. (I) SUB-CLAUSE (I) OF SECTION 2(22B) OF THE ACT ENV ISAGES THE PRICE WHICH THE ASSET WOULD FETCH IN THE OPEN MARKE T ON THE RELEVANT DATE. THE RELEVANT DATE WILL BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 51 AND 52 OR OTHER APPROPRIATE SECTION OF THE ACT. FOR A SIMILAR CONCEPT OF MARKE T VALUE, REFERENCE MAY BE MADE TO SECTION 7(1) OF THE WEALTH -TAX ACT 1957. SUB-CLAUSE (II) OF THE DEFINITION IS ATTRACTE D WHEN THE PRICE OF THE ASSET IN THE OPEN MARKET AS CONTEMPLATED IN SUB-CLAUSE (I) CANNOT BE ASCERTAINED. INTERPRETING THIS CLAUS E, IT HAS BEEN POINTED OUT THAT THIS CONCEPT BRINGS IN THE QUESTIO N OF A ITA NOS. 08 & 14/BANG/2014 PAGE 8 OF 15 HYPOTHETICAL SELLER AND A WILLING PURCHASER IN A HY POTHETICAL MARKET AND THAT THE VALUATION IS NECESSARILY AN EST IMATE AS IT WOULD BE IMPOSSIBLE TO FIND OUT PROPERTIES IDENTICA LLY SITUATED WITH THE PROPERTY IN QUESTION IN ALL RESPECTS. IN T HE CASE OF MAHAMUDABAD PROPERTIES (P) LTD. V. CIT (1972) 85 IT R 500 (CAL), THE HON'BLE HIGH COURT OF CALCUTTA, IN THEIR JUDGEMENT DATED 27/7/1970, HAS HELD THAT 'NO RULES, HOWEVER F RAMED UNDER THE ACT, WERE BROUGHT TO OUR NOTICE HAVING A BEARIN G ON THE QUESTION. 3.12 IN REGARD TO THE QUESTION OF FMV OF THE PROPER TY, THE APPELLANT ADOPTED FMV AT RS .100 PER SQ FT. THE REG ISTERED VALUER ESTIMATED THE FMV OF THE SAID PROPERTY AT RS .175/ PER SQ FT IN THE FIRST INSTANCE AND RS.25/ - IN THE SECOND INSTANCE. THE GUIDANCE VALUE OF THE STATE GOVERNMENT IN THE VICIN ITY OF KORAMANGALA HAD VALUE OF RS.25/- PER SQ FT. THE SA LE PRICE OF THE PROPERTIES DURING THE YEAR 1981-82 IN III BLOCK OF KORAMANGALA RANGED BETWEEN RS.10/- AND RS.22/- PER SQ FT. HOWEVER, THE AO ADOPTED THE SAME AS ON 1/4/1981 AT RS.10 PER SQ FT. 3.13 THE APPELLANT NARRATED THE VARIOUS FACTORS IN THE DETERMINATION OF FMV FOR THE RELEVANT PERIOD. AS AL READY DISCUSSED ABOVE, THE VALUATION IS NECESSARILY AN ES TIMATE AS IT WOULD BE IMPOSSIBLE TO FIND OUT PROPERTIES IDENTICA LLY SITUATED WITH THE PROPERTY IN QUESTION IN ALL RESPECTS. LOO KING AT THE TOTALITY OF THE CIRCUMSTANCES, IN MY CONSIDERED OPI NION, TAKING THE FMV AS ON 1/4/1981 AT RS.50/- PER SQ FT WOULD B E APPROPRIATE, WHICH WOULD MEET THE ENDS OF JUSTICE. THE AO IS, THEREFORE, DIRECTED TO RECOMPUTE THE LONG TERM CAPI TAL GAINS BY ADOPTING FMV AT RS. 50/- PER SQ FT AS ON 1/4/1981. 9. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A) BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. DR HAS REITERATED THE STAND OF THE AO AS CO NTAINED IN THE ORDER OF ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(A). WE HAVE HEARD THE RIVAL SU BMISSIONS. IN THE MATTER OF DISPUTE WITH REGARD TO THE FMV AS ON 01.04.1981, TH E LAW PROVIDES FOR AN OPTION TO THE AO TO SEEK THE OPINION ON THE QUESTION OF VALUA TION TO THE DEPARTMENTAL VALUATION OFFICER (DVO). THE AO HAS NOT CHOSEN TO ADOPT SUCH A COURSE OF MAKING A REFERENCE TO THE DVO. AS WE HAVE ALREADY SEEN, T HE REPORT OF THE REGISTERED VALUER GIVING THE VALUE OF PROPERTY IN QUESTION I.E . (FMV AS ON 01.04.1981) AT RS. 175/SQ.FT. IS BASED ON THE GUIDELINES VALUE GIVEN B Y THE STATE GOVERNMENT AS ON 07.08.1985. THE AO CONFRONTED THE APPROVED VALUER THAT A CIRCULAR DATED ITA NOS. 08 & 14/BANG/2014 PAGE 9 OF 15 10.11.1982 ISSUED BY THE STATE GOVERNMENT WHEREIN C ERTAIN VALUATION WAS GIVEN IN RESPECT OF THE PROPERTIES IN THE VICINITY OF KORAMA NGALA. IT IS WHEN THIS CIRCULAR WAS CONFRONTED TO THE APPROVED VALUER, HE GAVE AN OPINI ON THAT BASED ON THE SAID CIRCULAR THE VALUATION OF THE ASSESSEES PROPERTY (FMV AS ON 01.04.1981) WOULD BE RS. 28/SQ.FT. IT APPEARS TO US THAT THE REPLY GIVEN BY THE APPROVED VALUER TO THE QUERY OF AO CANNOT BE CONCLUSIVE WITH REGARD TO THE FMV AS O N 01.04.1981. THE APPROVED VALUER HAS NOT COMPARED THE SEVERAL FACTORS WHICH W OULD GO TO DETERMINE THE FMV OF A PROPERTY. AS TO WHETHER THE PROPERTIES REFERRED TO IN THE CIRCULAR CONFRONTED TO THE REGISTERED VALUER BY THE AO AND THE PROPERTIES OF T HE ASSESSEE HAVE SAME LOCATION ADVANTAGE AND ADVANTAGE OF SIZE ETC.,IS NOT SPELT O UT IN THE STATEMENT OF THE REGISTERED VALUER. IN ANSWER TO QUESTION NO. 6 THE APPROVED VALUER HAS SAID THAT HIS VALUATION IS BASED ON MATERIAL AVAILABLE WITH HIM N AMELY THE CIRCULAR OF 1985. IT IS NOT CLEAR AS TO WHETHER THE GUIDELINES VALUE OF PRO PERTIES REFERRED TO IN THE ANSWER GIVEN TO QUESTION NO. 5 OF THE APPROVED VALUER IS L OCATED IN THE SAME PLACE OR IN THE VICINITY OF THE ASSESSEES PROPERTY. IN OTHER WORD S WE FIND LOT OF LOOSE ENDS IN THE STATEMENT GIVEN BY THE APPROVED VALUER BEFORE THE A O. IN THIS REGARD THE ASSESSEE HAS IN HER SUBMISSIONS DATED 30.9.2013 SPECIFICALLY POINTED OUT THAT THE AO DID NOT AFFORD OPPORTUNITY OF CROSS-EXAMINATION OF THE REGI STERED VALUER AND THEREFORE THE EVIDENCE IN THE FORM OF STATEMENT OF THE REGISTERED VALUER HAS TO BE IGNORED. THE ASSESSEE HAS IN THIS REGARD RELIED ON THE DECISION OF THE HONBLE MADRAS AND M.P.HIGH COURT IN THE CASE OF CIT VS. A.N.DYNANESWA RAM 297 ITR 1235 (MAD) AND PRAKASHCHAND NATHA VS. CIT 301 ITR 134 (MP). APART FROM THE ABOVE, IN ARRIVING AT THE VALUE ON THE BASIS OF STATEMENT OF REGISTERED V ALUER, THE AO HAS NOT TAKEN COGNIZANCE OF THE EXISTENCE OF THE BUILDING AND THE COST TO BE ATTRIBUTED TO THE VALUE OF BUILDING AS ON 1.4.1981. KEEPING THESE FACTS IN MIND AND ALSO TAKING NOTE OF THE FACT THAT THE AO HAS NOT CHOSEN TO MAKE A REFERENCE TO THE VALUATION OFFICER U/S. 55A OF THE ACT AND ALSO KEEPING IN MIND THE FACT THAT E STIMATION OF FMV AS ON 01.04.1981, IN THE ABSENCE OF A GOOD COMPARATIVE SA LE INSTANCE, WOULD BE ONLY AN APPROXIMATION, WE DEEM IT PROPER TO CONCLUDE THAT T HE FMV AS ON 01.04.1981 SHOULD BE FIXED AT RS. 75/SQ.FT. WE HOLD AND DIRECT ACCO RDINGLY. THE RELEVANT GROUNDS OF APPEAL OF THE REVENUE ARE ACCORDINGLY DISMISSED WHI LE THAT OF THE ASSESSEE IS PARTLY ALLOWED. ITA NOS. 08 & 14/BANG/2014 PAGE 10 OF 15 10. AS FAR AS THE QUESTION WHETHER INDEXED COST OF ACQUISITION HAS TO BE COMPUTED BY TAKING 1.4.1981 OR THE YEAR 1994 WHEN THE ASSESS EE SUCCEEDED TO THE PROPERTY AS LEGAL HEIR OF HER DECEASED HUSBAND, THE FACTS AR E THAT IN THE COMPUTATION OF CAPITAL GAIN THE ASSESSEE ADOPTED THE FMV OF THE P ROPERTY AS ON 1.4.1981 AS THE COST OF ACQUISITION OF THE PROPERTY AND ON THIS CLA IM THERE IS NO DISPUTE BY THE REVENUE THAT THE ASSESSEES WERE ENTITLED TO CLAIM S O IN VIEW OF THE PROVISION OF SEC.49(1)(III)(A) OF THE ACT. THE ASSESSEES WHILE COMPUTING ITS COST OF ACQUISITION ALSO CLAIMED INDEXATION ON FMV AS ON 1.4.1981. EXP LANATION (III) TO SEC.48 DEFINES INDEXED COST OF ACQUISITION TO MEAN AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR T HE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON T HE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER. 11. ACCORDING TO THE CIT, THE ASSET WAS HELD BY TH E ASSESSEE ONLY FROM 19.4.2007 WHEN PARTITION DEED WAS EXECUTED AND THEREFORE THE BENEFIT OF INDEXATION OUGHT NOT TO HAVE BEEN ALLOWED AS ON THE VERY SAME DATE I.E., 19.42007, THE ASSESSEE SOLD THE SHARE IN THE PROPERTY. 12. THE MODE OF COMPUTATION OF CAPITAL GAIN IS GIV EN IS SEC.48 OF THE ACT. THE PROVISIONS OF SEC.48 OF THE ACT, IN SO FAR AS IT IS NECESSARY FOR A DECISION IN THE PRESENT CASE, READS THUS: SEC.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 TRANSFER OF THE CAPITAL ASSET THE FOL LOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: PROVIDED THAT . PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER THAN C APITAL GAIN ARISING TO A NON- RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTU RES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE (II) SHALL HAVE EFFECT AS ITA NOS. 08 & 14/BANG/2014 PAGE 11 OF 15 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 : PROVIDED ALSO EXPLANATION : FOR THE PURPOSES OF THIS SECTION, (I) (II) (III) 'INDEXED COST OF ACQUISITION' MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N 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; (IV) 'INDEXED COST OF ANY IMPROVEMENT' MEANS AN AMO UNT WHICH BEARS TO THE COST OF IMPROVEMENT THE SAME PROPORTION AS COST INF LATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; (V) 'COST INFLATION INDEX', IN RELATION TO A PREVIO US YEAR, MEANS SUCH INDEX AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO SEVENT Y-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 T HIS BEHALF. 13. THE CONTROVERSY IN THE PRESENT CASE RELATES TO INTERPRETATION OF EXPLANATION (III) TO SEC.48 OF THE ACT, WHICH DEFINES THE EXPRESSION INDEXED COST OF ACQUISITION. WE FIND THAT THE ISSUE OF ALLOWING INDEXATION ON IDENT ICAL FACTS HAD COME FOR CONSIDERATION BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MANJULA J.SHAH (2012) 204 TAXMAN 691 (BOMBAY). THE QUESTIO N BEFORE THE HONBLE BOMBAY HIGH COURT WAS 'WHILE COMPUTING THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY THE ASSESSEE UNDER A GIFT , WHETHER THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO TH E YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET OR THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET ?'. THE FACTS OF THE CASE BEFORE THE HONBE BOMBAY HIGH COURT WAS THAT IN AY 04-05, THE ASSESSEE HAD DECLARED TOTAL INCOME OF RS . 20,92,400. THE SAID RETURN OF INCOME INCLUDED LONG-TERM CAPITAL GAINS ARISING FRO M THE SALE OF A RESIDENTIAL FLAT BEARING NO. 1202-A (CAPITAL ASSET FOR SHORT) AT C HAITANYA TOWERS, PRABHADEVI, MUMBAI. THE SAID FLAT WAS ORIGINALLY PURCHASED BY T HE DAUGHTER OF THE ASSESSEE (PREVIOUS OWNER FOR EASY REFERENCE) ON 29TH JAN., 1993 AT A COST OF RS. 50,48,350. ITA NOS. 08 & 14/BANG/2014 PAGE 12 OF 15 BY A GIFT DEED DT. 1ST FEB., 2003, THE PREVIOUS OWN ER GIFTED THE SAID CAPITAL ASSET TO THE ASSESSEE. ON 30TH JUNE, 2003, THE ASSESSEE SOLD THE SAID CAPITAL ASSET FOR A TOTAL CONSIDERATION OF RS. 1,10,00,000 AND OFFERED THE LONG-TERM CAPITAL GAINS TO TAX. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CON TENDED THAT THOUGH THE CAPITAL ASSET IN QUESTION WAS ACQUIRED BY THE ASSESSEE UNDE R A GIFT DEED DT. 1ST FEB., 2003 AND TRANSFERRED ON 30TH JUNE, 2003, UNDER S. 48 R/W S. 49 AND S. 2(42A) OF THE IT ACT, 1961 (THE ACT FOR SHORT), THE GAINS ARISING THERE FROM WERE LIABLE TO BE COMPUTED AS LONG-TERM CAPITAL GAIN, BY DEDUCTING FROM THE TOTAL CONSIDERATION RECEIVED, INTER ALIA, THE AMOUNT OF INDEXED COST OF ACQUISITION. THE ASSE SSEE CONTENDED THAT THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED WITH REFER ENCE TO THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE COST OF ACQUISITION WAS INCUR RED. IN THAT CASE, THE COST OF ACQUISITION WAS INCURRED ON 29TH JAN., 1993 AND, HE NCE, COST INFLATION INDEX FOR 1993- 94 WOULD BE APPLICABLE. THE AO WAS OF THE OPINION T HAT UNDER EXPLN. (III) TO S. 48 OF THE ACT, THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED WITH REFERENCE TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH TH E ASSET WAS FIRST HELD BY THE ASSESSEE. ACCORDING TO THE AO, THE ASSET WAS HELD BY THE ASSE SSEE FROM 1ST FEB., 2003 AND, THEREFORE, THE COST INFLATION INDEX FOR 2002-03 WOU LD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION. 14. THE HONBLE BOMBAY HIGH COURT HELD THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED WITH REFERENCE TO THE COST INFLATION IND EX 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 S. 48, THAT EXPRESSI ON HAS TO BE UNDERSTOOD AS DEFINED UNDER S. 2. EXPLANATION 1(I)(B) TO S. 2(42A ) PROVIDES THAT IN DETERMINING THE PERIOD FOR WHICH AN ASSET IS HELD BY AN ASSESSEE UN DER 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 29TH JAN., 1993, AS PER EXPLN. 1(I)(B) TO S. 2(42A), THE ASSESSEE IS DEEMED TO HAVE HELD THE CAPITAL ASS ET FROM 29TH JAN., 1993. BY REASON OF THE DEEMED HOLDING OF THE ASSET FROM 29TH JAN., 1993, THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET AS A LONG-TERM CAPITA L ASSET. IF THE LONG-TERM CAPITAL GAINS LIABILITY HAS TO BE COMPUTED UNDER S. 48 BY T REATING THAT THE ASSESSEE HELD THE CAPITAL ASSET FROM 29TH JAN., 1993, THEN, NATURALLY IN DETERMINING THE INDEXED COST OF ACQUISITION UNDER S. 48, THE ASSESSEE MUST BE TREAT ED TO HAVE HELD THE ASSET FROM ITA NOS. 08 & 14/BANG/2014 PAGE 13 OF 15 29TH JAN., 1993 AND ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WOULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUI SITION. IF THE ARGUMENT OF THE REVENUE THAT THE DEEMING FICTION CONTAINED IN EXPLN . 1(I)(B) TO S. 2(42A) CANNOT BE APPLIED IN COMPUTING THE CAPITAL GAINS UNDER S. 48 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 EXPLN. 1(I)(B) TO S. 2( 42A) AND S. 49(1)(II), THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET FROM 29TH JAN., 19 93 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 AC QUIRED UNDER A GIFT OR WILL AND THE CAPITAL GAINS UNDER S. 48 HAS TO BE COMPUTED BY APP LYING THE DEEMED FICTION, IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF REVENUE THAT T HE FICTION CONTAINED IN EXPLN. 1(I)(B) TO S. 2(42A) CANNOT BE APPLIED IN DETERMINI NG THE INDEXED COST OF ACQUISITION UNDER S. 48. 15. THE HONBLE COURT FURTHER OBSERVED THAT IT IS TRUE THAT THE WORDS OF A STATUTE ARE TO BE UNDERSTOOD IN THEIR NATURAL AND ORDINARY SENS E UNLESS THE OBJECT OF THE STATUTE SUGGESTS TO THE CONTRARY. THUS, IN CONSTRUING THE W ORDS ASSET WAS HELD BY THE ASSESSEE IN CL. (III) OF EXPLN. TO S. 48, ONE HAS TO SEE THE OBJECT WITH WHICH THE SAID WORDS ARE USED IN THE STATUTE. IF ONE READS EXPLN. 1(I)(B) TO S. 2(42A) TOGETHER WITH SS. 48 AND 49, IT BECOMES ABSOLUTELY CLEAR THAT THE OBJECT OF THE STATUTE IS NOT MERELY TO TAX THE CAPITAL GAINS ARISING ON TRANSFER OF A C APITAL ASSET ACQUIRED BY AN ASSESSEE BY INCURRING THE COST OF ACQUISITION, BUT ALSO TO T AX THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET INTER ALIA ACQUIRED BY AN ASSESSEE UN DER A GIFT OR WILL AS PROVIDED UNDER S. 49 WHERE THE ASSESSEE IS DEEMED TO HAVE INCURRED THE COST OF ACQUISITION. THEREFORE, IF THE OBJECT OF THE LEGISLATURE IS TO T AX THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL BY INCL UDING 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 CA NNOT 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 TH E ASSESSEE. IN OTHER WORDS, IN THE ABSENCE OF ANY INDICATION IN CL. (III) OF THE EXPLA NATION TO S. 48 THAT THE WORDS ASSET WAS HELD BY THE ASSESSEE HAS TO BE CONSTRUED DIFFE RENTLY, THE SAID WORDS SHOULD BE CONSTRUED IN ACCORDANCE WITH THE OBJECT OF THE STAT UTE, THAT IS, IN THE MANNER SET OUT ITA NOS. 08 & 14/BANG/2014 PAGE 14 OF 15 IN EXPLN. 1(I)(B) TO S. 2(42A). IF THE MEANING GIVE N IN S. 2(42A) IS NOT ADOPTED IN CONSTRUING THE WORDS USED IN S. 48, THEN THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL 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. 16. THE HONBLE COURT FURTHER HELD THAT APART FROM THE ABOVE, S. 55(1)(B)(2)(II) PROVIDES THAT WHERE THE CAPITAL ASSET BECAME THE PR OPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED UNDER S. 49(1), NOT ONLY THE CO ST OF IMPROVEMENT INCURRED BY THE ASSESSEE BUT ALSO THE COST OF IMPROVEMENT INCURRED BY THE PREVIOUS OWNER SHALL BE DEDUCTED FROM THE TOTAL CONSIDERATION RECEIVED BY T HE ASSESSEE WHILE COMPUTING THE CAPITAL GAINS UNDER S. 48. THE QUESTION OF DEDUCTIN G THE COST OF IMPROVEMENT INCURRED BY THE PREVIOUS OWNER IN THE CASE OF AN AS SESSEE COVERED UNDER S. 49(1) 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 AS SET WAS HELD BY THE ASSESSEE. THEREFORE, IT IS REASONABLE TO HOLD THAT IN THE CAS E OF AN ASSESSEE COVERED UNDER S. 49(1), THE CAPITAL GAINS LIABILITY HAS TO BE COMPUT ED BY CONSIDERING THAT THE ASSESSEE HELD THE SAID ASSET FROM THE DATE IT WAS HELD BY TH E PREVIOUS OWNER AND THE SAME ANALOGY HAS ALSO TO BE APPLIED IN DETERMINING THE I NDEXED COST OF ACQUISITION. 17. THE HONBLE COURT EXPLAINED THAT THE OBJECT OF GIVING RELIEF TO AN ASSESSEE BY ALLOWING INDEXATION IS WITH A VIEW TO OFFSET THE EF FECT OF INFLATION. AS PER THE CBDT CIRCULAR NO. 636 DT. 31ST AUG., 1992 A FAIR METHOD OF ALLOWING RELIEF BY WAY OF INDEXATION IS TO LINK IT TO THE PERIOD OF HOLDING T HE 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 TH E INDEXED 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 HOL DING THE ASSET AND IN THE CASE OF AN ASSESSEE COVERED UNDER S. 49(1), THE PERIOD OF HOLD ING THE ASSET HAS TO BE DETERMINED BY INCLUDING THE PERIOD FOR WHICH THE SA ID 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 F IRST YEAR FOR WHICH THE SAID ASSET WAS HELD BY THE ASSESSEE. ITA NOS. 08 & 14/BANG/2014 PAGE 15 OF 15 18. THE HONBLE COURT FINALLY CONCLUDED 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 PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 19. IN VIEW OF THE AFORESAID DECISION OF THE HONB LE BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT THE CIT(A) WAS FULLY JUSTIFIED IN ALL OWING THE BENEFIT OF INDEXATION ON FMV AS ON 1.4.1981 FROM 1.4.1981. WE CONFIRM THE O RDER OF THE CIT(A) AND DISMISS THE RELEVANT GROUNDS OF APPEAL OF THE REVENUE. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF OCTOBER, 2017. SD/- SD/- (JASON P BOAZ) (N.V. VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 13 TH OCTOBER, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.