DCIT, New Delhi V. M/s. Soni Sonu Mirchandani, New Delhi

ITA 3586/DEL/2013

• Counselvise Citation: 358620114 RSA 2013
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Keywords: Capital asset; Gift; Question of law; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO. 3586/DEL/2013 ASSESSMENT YEAR: 2009-10 DCIT, CIRCLE 32(1), ROOM NO. 1502, E-2 BLOCK, 15 TH FLOOR, CIVIC CENTRE, MINTO ROAD, NEW DELHI. VS. SONI SONU MIRCHANDANI, F-166, MALCHA MARG, NEW DELHI. AAQPM7786H (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RENUKA JAIN GUPTA, SR. DR RESPONDENT BY: SH. AMIT GUPTA, CA O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)-XXVI, NEW DELHI, DATED 14/03/2013 FOR A.Y. 2 009-10. 2. THE ASSESSEE HAD FILED HER RETURN OF INCOME DECL ARING TOTAL INCOME OF RS. 92,15,12,886/-. THE ASSESSEE DERIVED INCOME FR OM SALARY, CAPITAL GAIN AND OTHER SOURCES. THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN OF RS. 92,33,99,485/- ON SALE OF SHARES AS PER FOLLOWING W ORKING: A CAPITAL GAIN DURING 01.04.08 TO 31.03.09 29988 SHARES OF GUVISO HOLDINGS (P) LTD. GIFTED BY MR. MALANI DT. 15.6.05 TO MS. SONI MIRCHANDANI COST AS PER BALANCE SHEET OF MR. BHAGWAN MALANI AS ON 31.3.1999 INDEXED 29988*100 29,98,800.00 ITA NO. 3586/D/2013 2 COST IN 2008-09 582 (2998800 X 582/351 49,72,369.23 49,72,369.23 B GIFT TO MS. SONI MIRCHANDANI BY MR. VARUN & MR. KARAN 30000 SHARES OF GUVISO, (INHERITED FROM MRS. P.L. MIRCHANDANI) COST WITH MRS. P.L. MIRCHANDANI AS 30000*100 30,00,000.00 ON 19.10.2003 582 (300000 X 582/463) 37,71,058.32 37,71,058.32 TOTAL INDEXED COST 87,43,427.55 C 4978 SHARES OF IWAI ELECTRONICS LTD. GIFTED BY MR. MALANI DT. 15.6.05 TO MS. SONI MIRCHANDANI COST AS PER BALANCE 4978*100 4,97,800.00 SHEET OF MR. BHAGWAN MALANI AS ON 31.3.1999 INDEXED COST IN 2008-09 582 (497800X582/251) 8,25,411.97 8,25,411.97 95,68,839.51 GROSS INDEXED COST IN 2008-09 93,88,81,656.00 D SALE CONSIDERATION OF GUVISO & IWAI SHARES 92,93,12,816.49 CAPITAL GAIN LOSS ON CAPITAL A 1661 SHARES OF ADINO ELECTRONICS P. LTD. 1500 SHARES GIFTED BY MR. MALANI DT. 15.6.05 TO MS. SONI MIRCHANDANI 161 SHARES GIFTED BY MR. MALANI DT. 03.03.05 TO MS. SONI MIRCHANDANI MR. BHAGWAN MALANI 17.3.1999 COST AS PER BALANCE SHEET OF MR. BHAGWAN MALANI AS ON 31.3.1999 1661*100 1,66,100.00 INDEXED COST IN 2008-09 582 (166100 X 582/351) 2,75,413.68 1,66,100.00 SALE CONSIDERATION (1,09,313.68) (1,09,313.68) B 1000 SHARES OF ADONIS ELECTRONICS P. LTD. 1000 SHARES GIFTED BY MR. MALANI DT. 13.3.06 COST AS PER BALANCE SHEET OF MR. BHAGWAN 1000*100 1,00,000.00 MALANI AS ON 02.07.2001 INDEXED COST IN 2008-09 582 1,36,619.72 (100000X582/351) SALE CONSIDERATION 1,00,000.00 CAPITAL LOSS (36,619.72) (36,619.72) EXPENSES 16.06.2008 PAID TO G.S. TRAVELS P. LTD. VIDE B. NO.A-200800645 & 1644 FOR MR. C. TAMPI (LEGAL ADVISOR) 33,964.00 25.06.2008 PAID TO KONIVA TRAVELS VIDE B. NO. 200801499 MR. SONU MIRCHANDANI ALONG WITH ADVOCATE 34,683.00 26.08.2008 PAID TO JAYANT NATH, ADVOCATE VIDE B. NO. 1/132 1,10,000.00 26.08.2008 PAID TO AMAR CHAND MANGALDAS & SURESH A. SHROFF & CO. VIDE BILL NO. AMSS/DEL/08-09/0822 5,15,750.00 06.06.2008 PAID TO MR. U.K. CHAUDHARY, ADVOCATE VIDE BILL DATED 17.05.2008 60,500.00 06.06.2008 PAID TO MR. VIVEK B. SAHARYA, ADVOCATE VIDE FREE BILL DATED 30.05.2008 12,500.00 7,67,397.00 (7,67,397.00) NET CAPITAL GAIN 92,83,99,486.09 ITA NO. 3586/D/2013 3 2.1 THE ASSESSEE HAD FURTHER CLAIMED DEDUCTION OF R S. 50 LAKHS U/S 54EC OF THE I.T. ACT, AND OFFERED RS. 92,33,99,486/- AS LONG TERM CAPITAL GAIN. THE AO NOTICED FROM THE COMPUTATION OF CAPITAL GAIN THA T ALL THE SHARES OF FOUR COMPANIES SOLD BY ASSESSEE DURING THE YEAR WERE NEI THER PURCHASED BY HER NOR ALLOTTED TO HER ORIGINALLY FOR WHICH SHE HAD PA ID ANY COST. INSTEAD, SHE HAD RECEIVED ALL THE SHARES THROUGH GIFT FROM HER T WO SONS NAMELY SH. VARUN AND SH. KARAN AND ALSO FROM HER FATHER SH. BHAGWAN MALANI. ACCORDINGLY, THE AO CONCLUDED THAT THE CASE OF ASSESSEE WAS COVE RED U/S 49(1)(II) OF THE I.T. ACT WHICH PROVIDES THAT WHERE THE CAPITAL ASSE T BECOME THE PROPERTY OF ASSESSEE UNDER THE GIFT, THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT. HE FURTHER POINTED OUT THAT PREVIOUS OWNER OF THE PRO PERTY HAS BEEN EXPLAINED IN RELATION TO ANY CAPITAL ASSET OWNED BY ASSESSEE AS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY A MOD E OF ACQUISITION OTHER THAN THAT REFERRED TO IN CLAUSE (II) OF SECTION 49 (1) OF THE I.T. ACT. ACCORDINGLY, HE CONCLUDED THAT BENEFIT OF INDEXATIO N ALLOWABLE IN ACCORDANCE WITH SECOND PROVISO TO SECTION 48 OF THE I.T. ACT W ILL BE SUBJECT TO EXPLANATION (III) OF SECTION 48. HE, THEREFORE, PO INTED OUT THAT IN ORDER TO WORK OUT THE CORRECT INDEXED COST OF THE ACQUISITIO N OF SHARES SOLD IN ACCORDANCE WITH EXPLANATION (III) TO SECTION 48 OF THE I.T. ACT, 1961, IT WOULD BE RELEVANT TO FIND OUT THE COST OF ACQUISITION OF SHARES BY THE PREVIOUS OWNER AND ALSO ASSESSEE. AFTER CONSIDERING THE ASSESSEE S COMPUTATION, THE AO ISSUED SHOW CAUSE NOTICE TO EXPLAIN AS TO WHY THE C OST INFLATION INDEX FOR THE ITA NO. 3586/D/2013 4 YEAR IN WHICH THE SHARES WERE FIRST HELD BY ASSESSE E (THAT IS THE YEAR OF ACQUISITION BY ASSESSEE) MAY NOT BE APPLIED AND IND EXED COST OF ACQUISITION BE REWORKED OUT ACCORDINGLY. THE ASSESSEES EXPLAN ATION HAS BEEN REPRODUCED IN PARA 6A OF ASSESSMENT ORDER IN WHICH PRIMARILY ASSESSEE RELIED ON THE DECISION OF SPL. BENCH OF ITAT IN THE CASE OF DEPUTY CIT VS. MANJULLAH J. SHAH IN ITA NO. 735/MUM./2000 DATED 16 /10/2009. IN THIS CASE, IT WAS HELD THAT THE INDEXED COST OF ACQUISIT ION OF CAPITAL ASSET, WHICH HAD BECOME PROPERTY OF THE ASSESSEE UNDER GIFT, HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER F IRST HELD THE ASSETS. THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF SMT. NEENA DEVGAN VS. ITO (2008), 117 TTJ-121, WHEREIN IT WAS, INTER-ALIA , HELD AS UNDER: 8.6 A CO-JOINT READING OF THE MEMORANDUM EXPLAININ G THE FINANCE BILL, 1992 AND CBDT CIRCULAR NO. 636 SHOWS THAT THE INDEXATION IS TO BE ALLOWED IN RESPECT OF PERIOD OF HOLDING OF THE A SSET AND NOT IN RELATION TO THE INDIVIDUALITY OF THE ASSESSEE. FOR THE PURPOSE OF DETERMINING THE PERIOD OF HOLDING INTERMEDIATE TRAN SFER ON ACCOUNT OF SUCCESSION ARE TO BE IGNORED. 2.2 THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF MRS. PUPHA SOFAT VS. ITO, 81 ITD 1 (OLD)(SMC) AND DEPUTY CIT V S. SMT. MEERA KHERO, 2 SOT 902 (MUM.). THE ASSESSEE ALSO REFERRED TO CBDT CIRCULAR NO. 636 DATED 31 ST AUGUST, 1992 (THE YEAR IN WHICH COST OF INDEXATION WAS INTRODUCED), WHEREIN IT WAS EXPLAINED THAT INDEXATI ON IS TO BE ALLOWED IN RESPECT OF PERIOD OF HOLDING OF THE ASSET AND NOT I N RELATION TO INDIVIDUALITY OF THE ASSESSEE. THE ASSESSEE POINTED OUT THAT THE CO ST ADOPTED IS THE COST OF ITA NO. 3586/D/2013 5 SHARES IN THE HAND OF PREVIOUS OWNER OF SHARES FROM WHOM THE ASSESSEE RECEIVED SHARES AS GIFT. THE ASSESSEE EXPLAINED TH E MODE OF ACQUISITION AS UNDER: GIVEN IN ANNEX-18 TO THE LETTER DATED 23.09.2011. THE COST ADOPTED IS THE COST OF SHARES IN THE HAND OF PREVIOUS OWNER S OF SHARES FROM WHOM THE ASSESSEE RECEIVED SHARES AS GIFT. 30000 S HARES OF GUVISO WERE RECEIVED BY THE ASSESSEE AS GIFT FROM HER SONS MR. VARUN S. MIRCHANDANI AND MR. KARAN S. MIRCHANDANI IN MARCH, 2008 WHO IN TURN INHERITED 14990 SHARES EACH FCROM THEIR GRAND MOTHER LATE MRS. P.L. MIRCHANDANI AS PER HER WILL ON 19.10.2003. CO PY OF THE WILL AS WELL AS STATEMENT OF AFFAIRS OF THAT DATE HAS BEEN SUBMITTED WITH THE LETTER DATED 27.09.2011 (POINT NO. 7). THE REMAINI NG SHARES OF GUVISO HOLDINGS AND OTHER THREE COMPANIES WERE RECE IVED AS GIFT FROM HER FATHER LT. SHRI BHAGWAN MALANI. COPIES OF GIFT DEEDS HAVE ALREADY BEEN FILED WITH THE LETTER DATED 27.09.2011 . A COPY OF THE WILL DT. 15.10.1999 HAS ALSO BEEN FILED WITH LETTER DATE D 27.09.2011 IN SUPPORT THAT HE HELD THE SHARES. IT MAY BE ADDED T HAT HE, WHO WAS 81 MET WITH A VERY SERIOUS ACCIDENT AT BANGALORE AND S INCE THEN HE WAS LYING IN COMA AND ON 03.10.2011 BREATHED HIS LAST. 3. THE AO DISALLOWED THE ASSESSEES CLAIM, INTER-AL IA, OBSERVING IN PARA 7 & 7(A) AS UNDER: 7. I HAVE CONSIDERED THE ASSESSEES SUBMISSION AND ALSO THE FACTS OF THE CASE AND IN LIGHT OF LEGAL PROVISIONS AND VARIOUS JUDICIAL PRONOUNCEMENT ON THE ISSUE. THE SECTION 2 (42AA)(B) OF THE I.T. ACT, 1961 ACCORDING TO WHICH IN THE CASE O F A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN THE C IRCUMSTANCES MENTIONED IN [SUB-SECTION(1)] OF SECTION 49, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREV IOUS OWNER REFERRED TO IN THE SAID SECTION. THE SECTION 2(42A )(B) ONLY SAYS ITA NO. 3586/D/2013 6 THAT WHILE CONSIDERING THE CAPITAL GAIN ON TRANSFER OF A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTIONED IN SECTION 49(1), THE PERIO D FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER SHOULD ALSO BE INCLUDED. MEANING THEREBY THAT THE DETERMINATION OF LONG TERM OR SHORT TERM CAPITAL GAIN DEPENDS UPON THE ENTIRE PERIOD OF HOLD ING OF ASSET BY ASSESSEE AND ALSO BY THE PREVIOUS OWNER. THIS IS I NFACT A DEFINITION WHEREBY THE CAPITAL ASSET SHOULD BE CONSIDERED AS S HORT TERM OR LONG TERM CAPITAL ASSET. THERE IS NO ISSUE OF INDE XATION IN THIS SECTION. THE SUB-CLAUSE (II) OF CLAUSE (B) OF SUB- SECTION 2 OF SECTIN 55 FURTHER SAYS THAT WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN [SUB- SECTION (1) OF] SECTION 49, AND THE CAPITAL ASSET BECAME THE PROPER TY OF THE PREVIOUS OWNER BEFORE THE [1 ST DAY OF APRIL, 1981],MEANS THE COST OF THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE F AIR MARKET VALUE OF THE ASSET ON THE [1 ST DAY OF APRIL, 1981], AT THE OPTION OF THE ASSESSEE. THE SECTION 55(2)(B)(II) ONLY GIVES AN O PTION TO ASSESSEE TO ADOPT THE COST OF PREVIOUS OWNER (WHERE THE CAPI TAL ASSET BECAME THE PROPERTY OF PREVIOUS OWNER BEFORE 01.04. 1981), THAT MAY BE THE ORIGINAL COST OF CAPITAL ASSET OR THE FA IR MARKET VALUE OF THE ASSET AS ON 01.04.1981. THIS ALSO DOES NOT PRO VIDE ANY BENEFIT OF INDEXATION FOR THE PERIOD AFTER 01.04.1981 TILL THE PERIOD WHEN THE CAPITAL ASSET BECAME THE PROPERTY OF ASSESSEE. INFACT, THE INDEXATION IS DEALT IN SECOND PROVISO TO SECTION 48 ACCORDING TO WHICH WHERE LONG TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG TERM CAPITAL ASSET, OTHER THAN CAPITAL GAIN AR ISING TO A NON- RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTU RES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVI SIONS OF CLAUSE (II) SHALL HAVE EFFECT AS IF FOR THE WORDS COST OF ACQUISITION HAD RESPECTIVELY BEEN SUBSTITUTED. THUS, THE BENEFIT OF INDEXATION IS A ITA NO. 3586/D/2013 7 SUBJECT MATTER OF SECTION 48 ONLY TO WHICH EXPLANAT ION (III) IS A RIDER WHEREIN IT HAS BEEN PROVIDED THAT INDEXED CO ST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COS T OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH IN WHICH THE ASSET IS TRANSFERRED BEA RS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASS ET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL,1981, WHICHEVER IS LATER. THE INTENT OF LAW IS AMPLY CLE AR THAT THE BENEFICIARY OWNER SHOULD GET THE BENEFIT OF INDEXAT ION FROM THE DATE OF ACQUISITION OF PROPERTY. INFACT THIS IS TH E REASON THAT ACQUISITION BY A DIFFERENT MODE HAS BEEN PROVIDED I N SECTION 49(1) OF THE I.T. ACT, 1961 AND A DIFFERENT MODE OF CALCU LATION FOR INDEXED COST OF ACQUISITION IS MENTIONED IN SPECIFI C PROVISIONS OF EXPLANATION (III) TO SECTION 48 OF THE I.T. ACT, 19 61. THUS, THERE IS NO SCOPE OF EXTENSION OF INDEXATION BENEFIT TO THE BENEFICIARY ASSESSEE WHO BECAME THE OWNER OF CAPITAL ASSET THRO UGH A MODE MENTIONED IN SECTION 49(1) OF THE I.T. ACT, 1961 BY INCLUDING THE PERIOD OF HOLDING OF ASSET BY PREVIOUS OWNER. ACCO RDING TO THE 2(42A)(B) AND ALSO SECTION 55(2)(B), THE ONLY BENEF IT EXTENDED TO THE BENEFICIARY ASSESSEE IS TREATMENT OF CAPITAL GA IN AFTER INCLUSION OF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE P REVIOUS OWNER ALONG WITH ASSESSEE. THUS, ALLOWING THE BENEFICIAR Y ASSESSEE FOR TAXATION OF THE CAPITAL GAIN AT A LOWER RATE EVEN T HOUGH THE ASSESSEE MAY HAVE BECOME OWNER OF THE PROPERTY IN T HE SAME YEAR IN WHICH THE PROPERTY WAS SOLD, IS THE ONLY INTENT OF STATUTE. THERE IS NO SCOPE OF PROVIDING INDEXATION FOR THE ENTIRE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER. RESPECTF ULLY DISAGREEING WITH LD. COUNSEL, I REJECT THE CLAIM OF ASSESSEE FO R CLAIMING INDEXATION FOR THE F.Y. PRIOR TO THE DATE ON WHICH THE PROPERTY WAS FIRST HELD BY THE ASSESSEE. AS DISCUSSED AFORESAID AND ALSO ITA NO. 3586/D/2013 8 MENTIONED BY ASSESSEE HIMSELF, COST OF ACQUISITION OF THE CAPITAL ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED. IT MEANS THAT THE PREVIO US OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY THE MODE OF ACQUIS ITION OTHER THAN THAT REFERRED TO IN CLAUSE (III) OF SECTION 49(1) O F THE I.T. ACT, 1961. 7(A) AS PER EXPLANATION, CLAUSE (III) OF SECTION 48 OF THE INCOME TAX ACT, 1961, THE INDEXED COST OF ACQUISITION MEAN S THE AMOUNT WHICH BEARS TO THE COST OF ACQUISITION, THE SAME PR OPORTION HAS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSE SSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY ASSESSEE OR FOR THE YEAR BEGINNING ON T HE FIRST DAYJ OF APRIL, 1981, WHICHEVER IS LATER. 4. THE AO HAS GIVEN A DETAILED CHART IN PARA 8 DEMO NSTRATING THE DATE IN WHICH THE ASSESSEE BECAME OWNER OF EACH SHARES FOR THE FIRST YEAR/FIRST TIME. HE, ACCORDINGLY, DETERMINED THE INDEX COST OF ACQUI SITION OF THE SHARES SOLD BY ASSESSEE AS UNDER: S.NO. NAME & NUMBER OF SHARES COST TO THE PREVIOUS OWNER FOR THE SHARE PRIOR TO THE TRANSFER TO ASSESSEE DATE WHEN THE ASSESSEE RECEIVED SHARES AS GIFT F.Y. IN WHICH THE SHARES WERE FIRST HELD BY ASSESSEE CII FOR THE YEAR IN WHICH THE SHARES WERE FIRST HELD BY ASSESSEE CII FOR THE YEAR OF TRANSFER INDEXED COST OF ACQUISITION OF THE SHARES 1 2 3 4 5 6 7 8 1 29980 SHARES OF GUVISO 29,98,000/- MARCH, 2008 2007-08 551 582 31,66,671/- 2 20 SHARES OF GUVISO 2,000/- MARCH, 2008 2007-08 551 582 2,112/- 3 29988 SHARES OF GUVISO 29,98,800/- MAY, 2005 2005-06 497 582 35,11,673/- 4 4978 SHARES OF IWAI 4,97,800/- MAY, 2005 2005-06 497 582 5,82,937/- 5 1500 SHARES OF ADINO 1,50,000/- MAY, 2005 2005-06 497 582 1,75,653/- 6 161 SHARES OF ADINO 16,100/- MAY, 2005 2005-06 497 582 18,853/- 7 1000 SHARES OF ADONIS ELECTRONICS 1,00,000/- 13.03.2006 2005-06 497 582 1,17,102/- INDEXED COST OF ACQUISITION OF THE ABOVE SHARES SOLD BY ASSES SEE DURING THE YEAR 75,75,001/- ITA NO. 3586/D/2013 9 5. THE AO DETERMINED THE NET TAXABLE GAIN AT RS. 92 ,58,05,358/- AS AGAINST RS. 92,33,99,486/- DETERMINED BY ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A), WHO ALLOWED THE ASSESSEES CLAIM OBSERVING IN PARA 7.3 TO 8 AS UNDER: 7.3 THUS, A CONJOINT READING OF SECTION 2(42A), S ECTION 48 AND SECTION 49(1) OF THE INCOME-TAX ACT, 1961 WOULD MAK E IT ABUNDANTLY CLEAR THAT THE BENEFIT OF INDEXATION COST OF ACQUIS ITION FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAINS MUST B E MADE AVAILABLE TO THE APPELLANT FROM THE DATE OF ACQUISI TION BY THE PREVIOUS OWNER AND NOT FROM THE DATE OF INHERITANCE . THIS IS BECAUSE THE ACT HAS ALLOWED THE ASSESSEE TO START T HE JOURNEY FROM THE DATE ON WHICH THE ANCESTOR OF THE ASSESSEE ACQU IRED THE PROPERTY IN CASES WHERE THE COST OF THE PROPERTY IS REQUIRED TO BE ASCERTAINED OR WHERE THE NATURE OF THE ASSET IS TO BE ASCERTAIN ED. HOWEVER, WHEN IT COMES TO THE ASCERTAINING THE AMOUNT OF CAP ITAL GAINS, IT ALLOWS THE ASSESSEE TO START JOURNEY ONLY FROM THE DATE ON WHICH THE ASSESSEE ACQUIRES THE ASSET. THIS IS IN INEQUITABL E AND COULD NOT HAVE BEEN THE INTENTION OF LAW. THIS VIEW IS EXPRE SSED IN THE DECISION PRONOUNCED BY THE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF MRS. PUSHPA SAFAT VS. ITO, 81 ITD (CHD.) (S MC). THIS DECISION IS A DIRECT DECISION WHICH UNEQUIVOCALLY S TATES THAT THE INDEXATION HAS TO START FROM THE YEAR IN WHICH THE PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER IN CASE OF INHERITAN CE OF PROPERTY AND NOT FROM THE YEAR OF INHERITANCE. 7.4 IN THE CASE OF DCIT VS. MANJULA J. SHAH A SPECI AL BENCH WAS CONSTITUTED BY THE HONBLE PRESIDENT FOR CONSIDERIN G AND DECIDING THE FOLLOWING QUESTION AS A RESULT OF THE DIVERGENT VIEWS EXPRESSED BY THE DIVISION BENCHES. THE SAID QUESTION ALSO IN CORPORATES THE SOLITARY ISSUE ARISING FROM THE APPEAL OF THE REVEN UE WHICH IS ITA NO. 3586/D/2013 10 PREFERRED AGAINST THE ORDER OF CIT(APPEALS)-XII, MU MBAI DATED 26.09.2007 WHERE IT WAS OBSERVED AS UNDER: WHILE COMPUTING THE CAPITAL GAINS IN THE HANDS OF AN ASSESSEE WHO HAD ACQUIRED THE ASSET TRANSFERRED UND ER GIFT, WHETHER INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET OR THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 7.5 THE HONBLE ITAT, MUMBAI SPECIAL BENCH B-1, MUM BAI, AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IN THEIR ORDER DT. 16.10.2009 HAVE HELD A S UNDER: FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW TH AT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF THE CAPITAL ASSET WHIC H HAD BECOME THE PROPERTY OF THE ASSESSEE UNDER GIFT, THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASS ESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST O F ACQUISITION AS ENVISAGED IN EXPLANATION (III) TO SE CTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH T HE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. IN THAT VIEW OF THE MATTER, WE HOLD THAT INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTE D WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OW NER FIRST HELD THE ASSET. ACCORDINGLY, WE ANSWERED THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE A ND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. 7.6 THE HONBLE MUMBAI HIGH COURT IN THEIR JUDGEMEN T DT. 11.10.2011 PASSED IN THE ABOVE CASE (CIT VS. MANJUL A J SHAH) WHEREIN THE HONBLE HIGH COURT HAS CONFIRMED THE ABOVE SAID ORDER OF THE ITAT SPECIAL BENCH HOLDING THAT: WHILE COMPUTING THE CAPITAL GAINS ARISING ON TRANS FER OF THE CAPITAL ASSET, ACQUIRED BY THE ASSESSEE UNDE R A GIFT, THE INDEXED COST OF ACQUISITION HAS TO BE COM PUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OW NER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 7.7 THE AR OF THE APPELLANT HAS ALSO SUBMITTED BEFO RE ME THE COPY OF THE JUDGMENT OF THE HONBLE MUMBAI HIGH COURT DT . 5.7.2012 IN THE CASE OF CIT VS. MS. JANHAVI S. DESAI IN SUPPORT OF THE APPELLANT ITA NO. 3586/D/2013 11 CASE, WHEREIN IT HAS BEEN HELD THAT THE INDEXED COS T OF ACQUISITION OF THE CAPITAL ASSET HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIOUS OWNER FIRST HELD THE ASSET. 7.8 FURTHER, THE HONBLE DELHI HIGH COURT IN THE CA SE OF ARUN SHUNGLOO TRUST (2012) 18 TAXMAN.COM 261 (DEL) HAS A LSO HELD THAT BENEFIT OF INDEXATION COST OF IMPROVEMENT BY PREVIO US OWNERS IN CASES COVERED BY SECTION 49 WOULD BE ALLOWED . 8. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE IN STANT CASE AND IN THE LIGHT OF THE VARIOUS JUDICIAL PRONOUNCEMENTS , I HOLD THAT WHILE COMPUTING THE CAPITAL GAINS ARISING ON SALE OF SHAR ES ACQUIRED BY THE APPELLANT BY WAY OF GIFT, THE INDEXED COST OF A CQUISITION IS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PR EVIOUS OWNERS FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE APPELLANT BECAME THE OWNER OF THE ASSET. ACCORDINGLY, THE AO IS DIR ECTED TO COMPUTE THE CAPITAL GAINS IN THE CASE OF THE APPELLANT BY A PPLYING THE INDEXED COST OF ACQUISITION IN WHICH THE PREVIOUS OWNERS FI RST HELD THE ASSET IN QUESTION. THIS GROUND OF APPEAL IS ALLOWED . 6. LD. DR REFERRED TO PAGE 6 OF ASSESSMENT ORDER AN D POINTED OUT THAT MAIN ISSUE IN THE PRESENT APPEAL IS IN REGARD TO MEANING OF PREVIOUS OWNER. HE POINTED OUT THAT HONBLE DELHI HIGH COURT IN THE CA SE OF ARUN SHUNGLOO TRUST VS. CIT (2012) VIDE ITA NO. 116/2011 DT. 13/02/2012 HAS MERELY REFERRED TO PREVIOUS OWNER AND NOT TO OTHER OWNERS FROM WHOM THE PREVIOU S OWNER ACQUIRED THE PROPERTY. HE SUBMITTED THAT IN THIS CASE THE ONLY POINT OF DISPUTE WAS REGARDING THE PERIOD OF HOLDING OF THE SHARES BY THE IMMEDIAT E PREVIOUS OWNER AND NOT BY OTHER PREVIOUS OWNERS FROM WHOM THE SHARES WERE ACQ UIRED BY IMMEDIATE LAST PREVIOUS OWNER. ITA NO. 3586/D/2013 12 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S JANVI S. DESAI HAS CONSIDER ED AN IDENTICAL SITUATION. IN THIS CASE PREVIOUS OWNER (RESPONDENT)-ASSESSEE HAD ACQUIRED THE PROPERTY FROM HIS FATHER I.E. THE RESPONDENTS GRAND FATHER IN TH E YEAR 1942. THE RESPONDENTS ASSESSEES FATHER EXPIRED IN THE YEAR 1988, LEAVING BEHIND A WILL BEQUEATHING THE PROPERTY TO HIS WIFE AND THE RESPONDENT IN EQUAL SH ARES. THE RESPONDENT- ASSESSEE SOLD THE PROPERTY DURING THE ASSESSMENT YE AR 2005-06 AND CONSIDERED THE DATE OF ACQUISITION OF THE PROPERTY FOR THE PUR POSE OF CALCULATING THE CAPITAL GAINS TO BE PRIOR TO 01/04/1981. THE AO, HOWEVER, HELD THAT SINCE RESPONDENT INHERITED THE PROPERTY FROM HIS FATHER ON 21/08/198 8, THEREFORE, THE COST OF INDEXATION IS TO BE WITH REFERENCE TO 1988-89 AND N OT WITH REFERENCE TO 01/04/1981. THE HONBLE BOMBAY HIGH COURT HOWEVER, HELD THAT THE COST OF INDEXATION IS TO BE 01/04/1981. HE, THEREFORE, SUB MITTED THAT THE ISSUE IS TO BE STAND COVERED BY THE DECISION OF HONBLE BOMBAY HIG H COURT. 7.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. 8. THE BRIEF BACKGROUND OF THE TRANSFER OF THE SHAR ES IS LIKE THIS. THE ASSESSEE ALONG WITH HER HUSBAND SHRI SONU P. MIRCHA NDANI AND HER SONS SH. VARUN S. MIRCHANDANI AND SH. KARAN S. MIRCHANDANI H AD CONTROLLING STAKES IN TWO COMPANIES VIZ. GUVISO HOLDINGS PVT. LTD. AND IW AI ELECTRONICS P. LTD. THE ASSESSEE AND HER ABOVE NOTED FAMILY MEMBERS AND ALSO SH. GULU L. MIRCHANDANI HELD SHARES OF VARIOUS COMPANIES OF MRI C ELECTRONICS LTD. AND OTHER ASSOCIATE COMPANIES WHO IS OWNER OF THE BRAND NAME ONIDA. BOTH GULU ITA NO. 3586/D/2013 13 L. MIRCHANDANI (GLM GROUP) AND SONU L. MIRCHANDANI (SLM GROUP) ARE REAL BROTHERS. BOTH THE BROTHERS DECIDED THAT IN VIEW O F EXPANDED FAMILIES AND IN ORDER TO AVOID DISPUTE, DIFFERENCES AND MISUNDERSTA NDING WITHIN THE FAMILY MEMBERS, IT WOULD BE IN THE INTEREST OF BOTH THE GL M GROUP AND THE SLM GROUP THAT THEY SEPARATE THEIR BUSINESSES. ACCORDINGLY, A FAMILY SETTLEMENT AGREEMENT/MEMORANDUM WAS ENTERED INTO ON 31 ST MAY, 2008. AS PER THIS SETTLEMENT, IN CONSIDERATION OF RS. 93,88,81,656/-, THE 59,988 EQUITY SHARES IN GUVISO HOLDINGS PVT. LTD. AND 4,978 SHARES IN IWAI ELECTRONICS PVT. LTD. HELD BY THE ASSESSE SMT. SONI SONU MIRCHANDANI WERE TO B E TRANSFERRED TO SH. GULU L. MIRCHANDANI. THE AO FURTHER EXAMINED THE MODE O F ACQUISITION OF THE SHARES BY ASSESSEE. HE NOTED THAT OUT OF 59,988 SHARES OF GUVISO SOLD BY THE ASSESSEE, 30,000 SHARES WERE RECEIVED BY HER FROM H ER TWO SONS NAMELY SH. VARUN & SH. KARAN IN MARCH, 2008 (I.E. 15,000 FROM EACH) AS GIFT. THE REMAINING 59,908 SHARES OF GUVISO WERE RECEIVED BY THE ASSESS EE FROM HER FATHER SH. BHAGWAN MALANI IN MAY, 2005 AGAIN AS GIFT. THE 4,9 78 SHARES OF IWAI WERE ALSO RECEIVED AS GIFT FROM HER FATHER IN MAY, 2005. OUT OF THE 16,061 SHARES OF ADDINO ELECTRONICS, 1500 SHARES WERE RECEIVED AS GIFT IN M AY, 2005 AND REMAINING 161 SHARES WERE FURTHER RECEIVED AS GIFT IN MAY, 2006. THE 1000 SHARES OF ADONIS ELECTRONICS WERE RECEIVED ON 13/03/2006 AS GIFT BY ASSESSEE FROM HER FATHER SH. BHAGWAN MALANI. THE ASSESSEE HAD SUBMITTED FOLLOWI NG CHART IN THIS REGARD: NAME OF SHARES NUMBER OF SHARES QUANTITY, YEAR OF ACQUISITION AND NAME OF DONORS EXPLANATION OF DONORS RECORDS REGARDING NO. OF SHARES & VALUE GUVISO 59988 30000 FROM MR. VARUN & MR. KARAN IN MARCH, 2008 I.E. 15000 FROM EACH, AS GIFT 10 SHARES WERE RECEIVED BY EACH MR. VARUN & MR. KARAN AS GIFT FROM THEIR UNCLE. COPIES OF ITA NO. 3586/D/2013 14 SHARES CERTIFICATES ALREADY FILED. TOTAL INVESTMENT RECORDED IN THE STATEMENT OF AFFAIRS OF DONORS IS RS. 15,00,000/- EACH AGGREGATING TO RS. 30,00,000/-. 14990 RECEIVED BY EACH ON DEATH OF THEIR GRAND MOTHER SMT. P.L. MAN CHANDANI ON 19.10.03. VALUE OF SHARES SHOWN IN THEIR STATEMENT OF HER AFFAIRS PREPARED ON THE DATE OF DEATH. A COPY OF HER RETURN FOR THE A.Y. 2001-02 IS FILED NOW WITH ALL DOCUMENTS. THE INVESTMENT SHOWN IN THE STATEMENT OF AFFAIRS ATTACHED TO THE RETURN IS RS. 29,98,000/- 29988 FROM SHRI BHAGWAN MALANI (FATHER) IN MAY, 2005 AS GIFT COPIES OF HIS WILL DT. 27.02.1999 (COPY ENCLOSED) AND 15.10.1999 (ALREADY FILED) RECORD THEIR NUMBER AND THE BALANCE SHEET FOR THE AY 01-02 (ALREADY FILED) RECORD THE NUMBER AS WELL AS THE INVESTMENT VALUE OF RS. 29,98,800/- IWAI 4978 RECEIVED AS GIFT FROM SH. BHAGWAN MALANI, (FATHER) IN MAY, 2005 FACTS ARE SIMILAR TO GUVISO SHARES. INVESTMENT VALUE RECORDED IN HIS BALANCE SHEET AS ON 31.03.2001 IS RS. 49,78,000/- ADINO ELECTRONICS 1661 1500 RECEIVED AS GIFT IN MAY, 2006 AND 161 SHARES IN MARCH, 2006 NUMBER RECORDED IN THE WILL DATED 27.02.1999, 15.10.99 IS 1500 AND INVESTMENT COST ACCOUNTED FOR IN THE RETURN MENTIONED ABOVE IS RS. 1,50,000/- REMAINING 161 SHARES MAY HAVE BEEN ACQUIRED IN FY 2002-03 (COPY ENCLOSED). INVESTMENT VALUE THEREIN HAS INCREASED TO RS. 1,66,100/-. ADONIS ELECTRONICS 1000 RECEIVED AS GIFT FROM FATHER MR. BHAGWAN MALANI ON 13.03.2006 THE DONOR BROUGHT THESE SHARES AT PAR IN MAY, 2001. PLEASE SEE ANNEX- V TO LETTER DATED 12.10.2011 AND EXPLANATION REGARDING COMPUTATION IN THE LETTER (PARA-2). THE COST IN THE HANDS OF DONOR IS ACCORDINGLY RS. 1,00,000/-. 9. THE ASSESSEE RELIED ON THE DECISION OF SPL. BENC H IN THE CASE OF DEPUTY CIT VS. MANJULA J. SHAH IN ITA NO. 7315/MUM./2007 D ATED 16/10/2009 IN SUPPORT OF ITS CONTENTION THAT THE INDEXED COST OF ACQUISIT ION OF CAPITAL ASSETS, WHICH HAD BECOME PROPERTY OF THE ASSESSEE UNDER GIFT, HAS TO BE COMPUTED WITH REFERENCE ITA NO. 3586/D/2013 15 TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSETS. THE ASSESSEE, INTER-ALIA, POINTED OUT AS UNDER: GIVEN IN ANNEX-18 TO THE LETTER DATED 23.09.2011. THE COST ADOPTED IS THE COST OF SHARES IN THE HAND OF PREVIO US OWNERS OF SHARES FROM WHOM THE ASSESSEE RECEIVED SHARES AS GI FT. 30000 SHARES OF GUVISO WERE RECEIVED BY THE ASSESSEE AS G IFT FROM HER SONS MR. VARUN S. MIRCHANDANI & MR. KARAN S. MIRCHA NDANI IN MARCH, 2008 WHO IN TURN INHERITED 14990 SHARES EACH FROM THEIR GRAND MOTHER LATE MRS. P.L. MIRCHANDANI AS PER HER WILL ON 19.10.2003. COPY OF THE WILL AS WELL AS STATEMENT OF AFFAIRS OF THAT DATE HAS BEEN SUBMITTED WITH THE LETTER DATED 27.09 .2011 (POINT NO. 7). THE REMAINING SHARES OF GUVISO HOLDINGS AND OT HER THREE COMPANIES WERE RECEIVED AS GIFT FROM HER FATHER LT. SH. BHAGWAN MALANI. COPIES OF GIFT DEEDS HAVE ALREADY BEEN FIL ED WITH THE LETTER DATED 27.09.2011. A COPY OF THE WILL DATED 15.10.1 999 HAS ALSO BEEN FILED WITH LETTER DATED 27.09.2011 IN SUPPORT THAT HE HELD THE SHARES. IT MAY BE ADDED THAT HE, WHO WAS 81 MET WI TH A VERY SERIOUS ACCIDENT AT BANGALORE AND SINCE THEN HE WAS LYING IN COMA AND ON 03.10.2011 BREATHED HIS LAST. 10. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION FOR THE REASONS GIVEN IN PARA 7 OF HIS ORDER AND COMPUTED THE INDEX ED COST OF THE ACQUISITION OF THE SHARES SOLD BY THE ASSESSEE, AS UNDER: S.NO. NAME & NO. OF SHARES COST TO THE PREVIOUS OWNER FOR THE SHARE PRIOR TO THE TRANSFER TO ASSESSEE DATE WHEN THE ASSESSEE RECEIVED SHARES AS GIFT F.Y. IN WHICH THE SHARES WERE FIRST HELD BY ASSESSEE CII FOR THE YEAR IN WHICH THE SHARES WERE FIRST HELD BY ASSESSEE CII FOR THE YEAR OF TRANSFER INDEXED COST OF ACQUISITION OF THE SHARES 1 2 3 4 5 6 7 8 1. 29980 SHARES OF GUVISO 29,98,000/- MARCH, 2008 2007-08 551 582 31,66,671/- 2. 20 SHARES OF GUVISO 2,000/- MARCH, 2008 2007-08 551 582 2,112/- 3. 29988 SHARES OF GUVISO 29,98,800/- MAY, 2005 2005-06 497 582 35,11,673/- ITA NO. 3586/D/2013 16 4. 4978 SHARES OF IWAI 4,97,800/- MAY, 2005 2005-06 497 582 5,82,937/- 5. 1500 SHARES OF ADINO 1,50,000/- MAY, 2005 2005-06 497 582 1,75,653/- 6. 161 SHARES OF ADINO 16,100/- MAY, 2005 2005-06 497 582 18,853/- 7. 1000 SHARES OF ADONIS ELECTRONICS 1,00,000/- 13.03.2006 2005-06 497 582 1,17,102/- INDEXED COST OF ACQUISITION OF THE ABOVE SHARES SOLD BY ASSESS EE DURING THE YEAR 75,75,001/- 10.1 THE AO ACCORDINGLY, WORKED OUT TAXABLE LONG TE RM CAPITAL GAIN AS UNDER: A) SALE CONSIDERATION OF SHARES OF GUVISO & IWAI AS SH OWN RS. 93,88,81,656/- B) SALE CONSIDERATION OF SHARES OF ADINO ELECTRONICS A S SHOWN RS. 1,66,100/- C) SALE CONSIDERATION OF SHARES OF ADONIS ELECTRONICS AS SHOWN RS. 1,00,000/- D) TOTAL SALE CONSIDERATION OF ABOVE SHARES RS. 93, 91,47,756/- E) EXPENSES INCURRED ON TRANSFER AS CLAIMED RS. 7,6 7,397/- F) INDEXED COST OF ACQUISITION OF SHARES AS PER PARA 8 (A) ABOVE RS. 75,75,001/- G) LONG TERM CAPITAL GAIN (D-E-F) RS. 93,08,05,35 8/- H) DEDUCTION U/S 54EC AS CLAIMED IN ITR RS. 50,00,0 00 /- I) NET TAXABLE LONG TERM CAPITAL GAIN (G-H) RS. 92, 58,05,358/- THE LONG TERM CAPITAL GAIN ON SALE OF SHARES IS DET ERMINED AT RS. 92,58,05,358/- AND WILL BE TAXED ACCORDINGLY. 11. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL RELYIN G ON FOLLOWING DECISIONS: A) DCIT VS. MANJULA J. SHAH, WHICH WAS APPROVED BY HON BLE MUMBAI HIGH COURT VIDE ITS JUDGMENT DATED 11 TH OCTOBER, 2011. B) MRS. PUSHPA SAFAD VS. ITO, 81 ITD (CHD.) (SMC). C) CIT VS. MS. JANHAVI S. DESAI (MUM.) DATED 05/07/201 2. D) DELHI HIGH COURT ARUN SHUNGLOO TRUST VS. CIT (2012) 18 TAXMAN, ITA NO. 116/2011 DATED 13/02/2012. 12. THUS, THE ENTIRE CONTROVERSY REVOLVES AROUND TH E MEANING OF PREVIOUS OWNER. ITA NO. 3586/D/2013 17 13. SECTION 49 DEALS WITH COST WITH REFERENCE TO CE RTAIN MODES OF ACQUISITION WHILE COMPUTING CAPITAL GAINS CHARGEABL E U/S 45. AS PER THIS SECTION IF ASSESSEE ACQUIRED ANY CAPITAL ASSET, INT ER-ALIA, BY WAY OF GIFT OR WILL THEN THE COST OF ACQUISITION OF THE ASSET IS TO BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED I T, AS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASSETS INCURRED OR B ORNE BY THE PREVIOUS OWNER OR THE ASSESSEE, AS THE CASE MAY BE. EXPLANA TION TO THIS SECTION DEFINES THE EXPRESSION PREVIOUS OWNER OF THE PROPE RTY AS UNDER: [EXPLANATION IN THIS [SUB-SECTION] THE EXPRESSI ON PREVIOUS OWNER OF THE PROPERTY IN RELATION TO ANY CAPITAL ASSET O WNED BY AN ASSESSEE MEANS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY A MODE OF ACQUISITION OTHER THAN THAT REFERRED TO I N CLAUSE (I) OR CLAUSE (II) [OR CLAUSE (IV)] OF THIS [SUB-SECTION]. ] 14. A BARE PERUSAL OF THIS EXPLANATION MAKES IT ABU NDANTLY CLEAR THAT IF THE MODE OF ACQUISITION OF A CAPITAL ASSET WAS BY WAY O F GIFT OR WILL THEN IT WOULD NOT MEAN ONLY THE LAST PREVIOUS OWNER BUT WOULD INC LUDE THE PREVIOUS OWNER FROM WHOM THE CAPITAL ASSET DEVOLVED ON THE LAST PR EVIOUS OWNER BECAUSE INDEXATION IS TO BE ALLOWED IN RESPECT OF PERIOD OF HOLDING OF THE ASSET AND NOT IN RELATION TO THE INDIVIDUALITY OF THE ASSESSE E. WE FIND THAT THIS ISSUE IS CLEARLY COVERED BY THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. M/S JANHAVI S. DESAI (SUPRA) VIDE ITA NO. 1 26/2011. (IN THIS CASE THE SUBSTANTIAL QUESTION OF LAW BEFORE HONBLE BOMB AY HIGH COURT WAS AS UNDER: ITA NO. 3586/D/2013 18 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE ITAT WAS RIGHT IN DIRECTING THE AO TO CALCULATE THE LONG TER M CAPITAL GAIN WITHOUT APPRECIATING THAT SECTION 2(42A) OF THE ACT EXPLANATION 1 ONLY DETERMINES THE HOLDING PERIOD OF AN ASSET FOR THE PURPOSE OF SHORT TERM CAPITAL GAIN AND HAS NO APPLICATION TO L ONG TERM CAPITAL GAIN FOR WHICH THE ASSESSEE GETS THE BENEFIT OF IND EXATION? THE CROSS-OBJECTIONS ARE ADMITTED ON THE FOLLOWING SUBS TANTIAL QUESTION OF LAW: WHETHER, ON THEN FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL ERRED IN HOLDING THAT IN RESPECT OF THE 50 % OF THE PROPERTY INHERITED BY THE RESPONDENT FROM HIS MOTHER THE PER IOD OF HOLDING WILL START FROM 21.08.1988 AND NOT FROM 01.04.1981? ) 15. BRIEF FACTS OF THIS CASE ARE THAT IN OR ABOUT T HE YEAR 1942, THE ASSESSEE-RESPONDENTS FATHER ACQUIRED THE ENTIRE IM MOVABLE PROPERTY FROM HIS FATHER I.E. THE ASSESSEE-RESPONDENTS GRAND FAT HER. THE ASSESSEE- RESPONDENTS FATHER EXPIRED IN THE YEAR 1988, LEAVI NG BEHIND A WILL BEQUEATHING THE PROPERTY TO HIS WIFE AND THE ASSESS EE-RESPONDENT IN EQUAL SHARES. THE ASSESSEE-RESPONDENTS MOTHER EXPIRED O N 21/02/2000 LEAVING BEHIND A WILL BEQUEATHING HER 50% SHARE IN THE PROP ERTY TO THE ASSESSEE- RESPONDENT. 15.1 THE ASSESSEE-RESPONDENT SOLD THE PROPERTY DURI NG THE ASSESSMENT YEAR 2005-06 FOR RS. 9.50 CRORES DECLARI NG A LONG TERM CAPITAL GAIN OF RS. 38,44,247/-. THE ASSESSEE-RESPONDENT C ONSIDERED THE DATE OF ACQUISITION OF THE PROPERTY FOR THE PURPOSE OF CALC ULATING THE CAPITAL GAINS TO BE PRIOR TO 01/04/1981. ITA NO. 3586/D/2013 19 15.2 THE AO, HOWEVER, HELD THAT THE ACTUAL DATE OF ACQUISITION MUST BE CONSIDERED FOR CALCULATING THE CAPITAL GAINS. H E HELD THE DATE ON WHICH THE RESPONDENT INHERITED THE PROPERTY TO BE THE REL EVANT DATE AND, ACCORDINGLY, RECOMPUTED THE CAPITAL GAINS. THE REC OMPUTATION WAS ON THE BASIS OF 50% OF THE PROPERTY HAVING BEEN INHERITED BY THE ASSESSEE- RESPONDENT FROM HIS FATHER ON 21/08/1988 AND THE OT HER 50% THEREOF HAVING BEEN INHERITED BY HIM FROM HIS MOTHER ON 21/02/2000 AND, ACCORDINGLY, APPLIED THE COST INFLATION INDEX. 15.3 LD. CIT(A) ALLOWED THE ASSESSEE-RESPONDENTS A PPEAL HOLDING THAT THE PERIOD FOR DETERMINING THE LONG TERM CAPIT AL GAIN INCLUDED THE PERIOD FOR WHICH THE ORIGINAL OWNER HELD THE ASSETS THAT DEVOLVED UPON THE LEGAL HEIR. 15.4 THE REVENUE CHALLENGED THE ORDER OF CIT(A) BEF ORE THE ITAT. THE ITAT HELD THAT THE PERIOD FOR HOLDING 50% OF TH E PROPERTY INHERITED BY THE ASSESSEE-RESPONDENT FROM HIS FATHER WOULD START FROM 01/04/1981, WHEREAS IN RESPECT OF 50% OF THE PROPERTY INHERITED BY THE ASSESSEE- RESPONDENT FROM HIS MOTHER, THE PERIOD FOR HOLDING WOULD START FROM 21/08/1988, AS SHE BECAME THE OWNER OF HER 50% SHAR E OF PROPERTY ONLY FROM THAT DATE. 15.5 THUS, THE MAIN GRIEVANCE OF ASSESSEE-RESPONDEN T WAS ONLY WITH RESPECT TO THE FINDING OF THE TRIBUNAL THAT THE PER IOD OF HOLDING IN RESPECT OF 50% OF THE PROPERTY INHERITED BY HIM FROM HIS MOTHE R WOULD START FROM 21/08/1988 AND NOT FROM 01/04/1981. THE HONBLE BO MBAY HIGH COURT ITA NO. 3586/D/2013 20 AFTER CONSIDERING SECTION 2(42A) DEALING WITH THE D EFINITION OF SHORT TERM CAPITAL ASSET, SECTION 49(1) DEALING WITH COST WITH REFERENCE TO CERTAIN MODES OF ACQUISITION OF CAPITAL ASSET READ WITH EXP LANATION THERETO DEFINING THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY, HE LD THAT THE LAST PREVIOUS OWNER OF THE ASSESSEE-RESPONDENTS MOTHER WAS HAVIN G 50% SHARE IN THE PROPERTY AND, THEREFORE, HER HUSBANDS FATHER AND A T THE HIGHEST HER HUSBAND WILL COME WITHIN THE AMBIT OF PREVIOUS OWN ERS. THUS, THE ASSESSEE-RESPONDENT MUST BE DEEMED TO HAVE ACQUIRED 50% SHARE IN THE PROPERTY ALSO FROM 01/04/1981. 15.6 IN THE PRESENT CASE ALSO, WHILE COMPUTING THE CAPITAL GAINS ARISING ON SALE OF SHARES ACQUIRED BY THE ASSESSEE BY WAY OF GIFT, THE INDEXED COST OF ACQUISITION IS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNERS FIRST HELD THE ASSETS AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. WE, TH EREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DIRECTING THE AO TO COMPUTE THE CAPITAL GAINS IN THE CASE OF THE ASSESSEE BY APPLYING THE I NDEXED COST OF ACQUISITION IN WHICH THE PREVIOUS OWNERS FIRST HELD THE SHARES IN QUESTION. 16. IN VIEW OF THE ABOVE DISCUSSION, THE DEPARTMENT S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/01/2014 SD/- SD/- (R.P. TOLANI) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 31/01/2014 *KAVITA ITA NO. 3586/D/2013 21 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR