ITO (IT) 3(1), MUMBAI V. MOHINI ARUN JAYAVANT, MUMBAI

ITA 4995/MUM/2010

• Counselvise Citation: 499519914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: S K MUTSADDI
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4995/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) INCOME TAX OFFICER INTERNATIONAL TAXATION 3(1) SCINDIA HOUSE, BALLARD PIER MUMBAI 400 038 .. APPELLANT V/S MRS. MOHINI ARUN JAYAVANT C/O GPS & ASSOCIATES SITALADEVI TEMPLE ROAD MAHIM, MUMBAI 400 016 .... RESPONDENT REVENUE BY : MR. PARTHASARATHI NAIK ASSESSEE BY : MR. S.K. MUTSADDI DATE OF HEARING 17.8.2011 DATE OF ORDER 26.08.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 11 TH MARCH 2010, PASSED BY THE COMMISSIONER (APPEALS)-X, MUMBAI, FOR ASSESSMENT YEAR 2007-08. T HE SOLE GROUND RAISED BY THE REVENUE, READS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE BASE Y EAR FOR DETERMINING MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 2 THE INDEXED COST OF ACQUISITION SHOULD BE F.Y. 1981 -82 AS AGAINST F.Y. 1998-99 DETERMINED BY THE ASSESSING OFFICER . 2. BRIEF FACTS OF THE CASE, AS BROUGHT OUT BY THE COMM ISSIONER (APPEALS) IN HIS ORDER VIDE PARAS-2.1 AND 2.1.1, ARE AS FOLLO WS:- 2.1 BRIEF FACTS ARE THAT THE APPELLANT MRS. MOHINI ARUN JAYAVANT, NEE OF MS. SHEELA DATTATRAY BHISE HAS SOLD HER FLAT AT DADAR, MUMBAI, ON 9.5.2006, FOR A TOTAL CONSIDERATION OF ` 3,05,00,000. THIS FLAT WAS ACQUIRED BY WAY OF INHERITANCE FROM HER MOTHER BY W AY OF WILL FROM MRS. SHEELA DATTATRAY BHISE, WHO EXPIRED ON 23.11.1 998, SHE WAS THE OWNER OF PROPERTY PRIOR 1.4.1981, WHO HAD IN TURN I NHERITED THE PROPERTY FROM HER FATHER LATE MR. RAMKRISHNA VAMAN GUPTE, WHO EXPIRED ON 3.10.1952. THE APPELLANT HAS OPTED FAIR VALUE AS ON 1.4.1981 AND CLAIMED INDEXATION FROM 1.4.1981. THE APPELLANT HAS COMPUTED CAPITAL GAINS OF ` 2,07,36,654 (SALE CONSIDERATION ` 3,05,00,000 (-) EXPENSE INCURRED FOR TRANSFER OF ` 60,000 = 1,12,240 LESS COST INDEXATION ` 95,91,106]. THE ASSESSEES SHARE IN LONG TERM CAPITAL GAIN COMES TO ` 55,29,774 BEING 26.67 AS CO-SHARE. THE ASSESSEE HAS MADE INVESTMENT OF ` 55,80,000 IN REC BONDS ON 31.7.2008, HENCE, ENTIRE CAPITAL GAINS IS CLAIMED A S EXEMPT AND TAXABLE CAPITAL GAINS OFFERED AT ` NIL. 2.1.1 THE A.O. NOTED THAT THIS FLAT WAS HELD BY APP ELLANT W.E.F. 23.11.1998 I.E., THE DATA ON WHICH SHE INHERITED BY WAY OF WILL FROM HER GRAND MOTHER ON HER DEATH. THE INDEXED COST OF ACQUISITION UNDER PRIVOSO TO SEC. 48(III) MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION OF THE SAME PROPORTION AS COST INFLATIO N INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE A SSESSEE OR FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL 1981, WHICHEVER IS LATER. THEREFORE, THE A.O. HELD THAT INDEXATION IS TO BE A LLOWED TO AN ASSESSEE FROM THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY HIM. THE A.O. ALSO RELIED ON IN THE CASE OF KISHORE KANUNGO (102 ITD 437) WHICH RULED IN FAVOUR OF REVENUE. THE A.O. THEREFOR E, CONCLUDED THAT THE APPELLANT HAS HELD THE ASSET FOR THE FIRST TIME ON 32.11.1998 I.E., THE DATE ON WHICH THE APPELLANT INHERITED THE PROPE RTY. ACCORDINGLY, THE A.O. WORKED OUT INDEXED COST AT ` 28,52,578 (19,29,200 X 519 / 351) AND BY APPLYING COST OF INFLATION INDEX FOR 19 98-99, THE YEAR IN WHICH THE ASSET FIRST HELD BY THE APPELLANT, COMPUT ED THE CAPITAL GAINS AT ` 2,07,36,654 AS AGAINST CAPITAL GAINS OF ` 5,29,774 DECLARED BY THE ASSESSEE AND BROUGHT TO TAX ACCORDINGLY. THE A.O. A CCORDINGLY, IN THE CASE OF ASSESSEE COMPUTED LONG TERM CAPITAL GAIN AT ` 73,73,567 BEING 26.67% IN PROPERTY. AFTER ALLOWING DEDUCTION OF ` 55,80,000 IN REC BONDS COMPUTED LONG TERM CAPITAL GAIN AT ` 17,93,567 WAS BROUGHT TO TAX. 3. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 3 THE CASE LAWS CITED BEFORE US, WE FIND THAT THE ISS UE BEFORE US IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE B Y MUMBAI SPECIAL BENCH DECISION OF THIS TRIBUNAL RENDERED IN DCIT V/S MANJ ULA J. SHAH, (2010) 35 SOT 105 (MUM.) (SB), WHEREIN THE TRIBUNAL HELD AS F OLLOWS:- HELD - 11. A COMBINED READING OF BOTH THE AFORESAID PROVIS IONS, WHICH ARE RELEVANT IN THE PRESENT CONTEXT, CLEARLY SHOWS THAT IMPORTANCE IS ASSIGNED TO THE PERIOD OF HOLDING OF THE CAPITAL AS SET IN AS MUCH AS EXPLANATION (III) TO SECTION 48 REFERS TO THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE WHEREAS EXPLANATION 1(B) T O SECTION 2(42A) PROVIDES FOR INCLUSION OF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IN DETERMINING THE PERIOD FOR WHICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE. HAVING REGARD TO THIS ASPECT AS WELL AS KEEPING IN VIEW THAT THE DEFINITIONS GIVEN IN SECTION 2 ARE APPLICABLE FOR THE ENTIRE ACT, WE ARE OF THE VIEW THAT THE LEGISLATIVE INTENTION BEHIND ENACTING THESE PROVISIONS IS VERY CLEAR TO TREAT TH E DATE AS WELL AS COST OF ACQUISITION OF CAPITAL ASSET OF THE PREVIOUS OWN ER TO BE THE DATE AND COST OF ACQUISITION OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING CAPITAL GAIN IN TERMS OF SECTION 48. THIS IS THE SCHEME OF THE ACT AS LAID OUT IN THE RELEVANT PROVISIONS AND THIS IS THE CONTEXT IN WHICH THE SAME HAS TO BE UNDERSTOOD AND APPRECIATED. AS RIGHTLY CONTEN TED BY THE LD. COUNSEL FOR THE ASSESSEE, HAD IT NOT BEEN THE INTEN TION OF THE LEGISLATURE, THE EXPRESSION USED IN EXPLANATION (II I) TO SECTION 48 WOULD HAVE BEEN '.............. FOR THE FIRST YEAR IN WHI CH THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE' AS USED IN SEC TION 49(1). 12. AS ALREADY OBSERVED, THE TRANSACTION OF GIFT IS NOT REGARDED AS TRANSFER AND ACCORDINGLY CAPITAL GAIN ARISING FROM SUCH TRANSFER IS NOT MADE CHARGEABLE TO TAX U/S. 45. HOWEVER, THIS CAPIT AL GAIN BY IMPLICATION IS BROUGHT TO TAX AT SECOND STAGE WHEN CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSESSEE UNDER GIFT IS SUBSEQUENTLY TRANSFERRED BY HIM BY ADOPTING THE DATE AND COST OF ACQUISITION OF THE CAPITAL ASSET OF THE PREVIOUS OWNER AS THE DATE AND COST OF ACQUISITION OF THE ASSESSEE. THIS PRECISELY IS THE SCHEME OF TH E ACT AS LAID OUT IN THE RELEVANT PROVISIONS AND IF EXPLANATION (III) TO SECTION 48 IS INTERPRETED IN THE WAY SOUGHT BY THE LD. D.R. BY TA KING THE DATE ON WHICH THE CAPITAL ASSET RECEIVED BY THE ASSESSEE UN DER A GIFT BECOMING HIS PROPERTY FOR THE PURPOSE OF WORKING OUT THE IND EXED COST OF ACQUISITION, IT WILL CERTAINLY NOT BE IN CONSONANCE WITH THE SCHEME. WE, THEREFORE, AGREE WITH THE CONTENTION OF THE LD. COU NSEL FOR THE ASSESSEE THAT ONE SHOULD NOT GO BY THE LITERAL MEAN ING OF THE WORDS OR BY THE GRAMMATICAL STRUCTURE OF THE SENTENCE WHILE INTERPRETING THE RELEVANT PROVISIONS OF EXPLANATION (III) TO SECTION 48. ON THE OTHER HAND, SCHEMATIC METHOD OF INTERPRETATION IS TO BE A DOPTED GOING BY THE DESIGN OR PURPOSE WHICH LIES BEHIND THE RELEVAN T PROVISIONS KEEPING IN MIND THE SPIRIT AND NOT THE LETTER OF LE GISLATURE. THE RELEVANT PROVISIONS THUS ARE TO BE INTERPRETED SO AS TO PROD UCE THE DESIRED MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 4 EFFECT WHICH WAS SOUGHT TO BE ACHIEVED. IT IS THERE FORE NECESSARY IN SUCH A SITUATION TO AVOID THE LITERAL INTERPRETATIO N OF THE RELEVANT PROVISIONS. WE, THEREFORE, DO NOT AGREE WITH THE VI EW TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF KISH ORE KANUNGO (SUPRA) WHILE DECIDING A SIMILAR ISSUE AGAINST THE ASSESSEE BY ADOPTING SUCH LITERAL INTERPRETATION OF EXPLANATION (III) TO SECT ION 48. IN OUR OPINION, IT IS AN APPROPRIATE SITUATION TO ASSIGN A SCHEMATIC I NTERPRETATION TO SAID EXPLANATION GOING BY THE DESIGN OR PURPOSE WHICH LI ES BEHIND IT SO AS TO PRODUCE THE DESIRED EFFECT WHICH WAS SOUGHT TO B E ACHIEVED. IF IT IS SO DONE, THE ONLY VIEW POSSIBLE FROM THE INTERPRETA TION OF RELEVANT PROVISIONS IS THAT THE PERIOD FOR WHICH THE ASSET W AS HELD BY THE PREVIOUS OWNER IS TO BE INCLUDED IN DETERMINING THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE ASSESSEE AS PROVIDED IN E XPLANATION 1(B) TO SECTION 2(42A) AND THIS POSITION IS APPLICABLE EVEN FOR WORKING OUT THE INDEXED COST OF ACQUISITION WITHIN THE MEANING OF E XPLANATION (III) TO SECTION 48. 13. THIS IS SO ALSO BECAUSE WHEN THE COST OF ACQUIS ITION TO THE PREVIOUS OWNER AS ON THE DATE OF ACQUISITION OF THE CAPITAL ASSET BY HIM IS TO BE ADOPTED AS COST OF ACQUISITION TO THE ASSESSEE EVEN FOR THE PURPOSE OF WORKING OUT THE INDEXED COST OF ACQUISIT ION AS PER THE MEANING GIVEN IN EXPLANATION (III) TO SECTION 48, I T DOES NOT SOUND LOGICAL TO ADOPT THE COST INFLATION INDEX FOR THE Y EAR IN WHICH THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE AND NOT T HAT FOR THE YEAR IN WHICH THE ASSET WAS ACQUIRED BY THE PREVIOUS OWNER. IN OUR OPINION, WHEN THE COST OF ACQUISITION OF THE PREVIOUS OWNER AS ON THE DATE OF ACQUISITION OF THE CAPITAL ASSET BY HIM IS TO BE TA KEN FOR WORKING OUT THE INDEXED COST OF ACQUISITION, THE ONLY CONCLUSIO N WHICH LOGICALLY AND REASONABLY FOLLOWS IS TO ADOPT THE COST INFLATION I NDEX CORRESPONDING TO THAT DATE FOR APPROPRIATELY DETERMINING THE INDEXED COST OF ACQUISITION. ANY OTHER VIEW AS SOUGHT TO BE PUT FORTH BY THE LD. D.R. RELYING ON THE DECISION OF DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF KISHORE KANUNGO (SUPRA) WOULD RESULT IN NOT GIVING THE BENE FIT OF INDEXATION FOR THE PERIOD OF HOLDING OF CAPITAL ASSET BY THE P REVIOUS ORDER WHICH WILL DEFEAT THE VERY PURPOSE OF ALLOWING THE BENEFI T OF INDEXATION AS EXPLAINED IN PARAGRAPH NO. 35 OF CBDT CIR. NO. 636 DT. 31.8.1992 WHICH IS EXTRACTED BELOW:- '35. THE FINANCE ACT HAS RECAST THE SYSTEM OF TAXAT ION OF LONG-TERM CAPITAL GAINS. AT PRESENT, AN ASSET IS CO NSIDERED TO BE LONG-TERM IF IT IS HELD FOR A PERIOD OF MORE THAN 36 MONTHS EXCEPT FOR SHARES OF A COMPANY, WHERE THE PE RIOD OF HOLDING SHOULD BE MORE THAN 12 MONTHS. THIS DEFI NITION CONTINUES TO BE THE SAME IN THE CHANGED FORMAT. IN THE SCHEME PRIOR TO 1.4.1992 A BASIC DEDUCTION OF RS. 1 5,000 AND A FIXED PERCENTAGE OF THE BALANCE AMOUNT OF CAP ITAL GAINS WAS ALLOWED AS DEDUCTION UNDER SECTION 48(2). THE PERCENTAGE DEPENDED ON THE NATURE OF THE ASSET AND THE STATUS OF THE ASSESSEE, BUT WAS UNRELATED TO THE LE NGTH OF THE PERIOD OF HOLDING. THIS DEDUCTION WAS INTENDED TO GIVE A ROUGH AND READY RELIEF FOR INFLATION, TO COUNTERA CT BUNCHING OF PROFITS AND TO EXCLUDE FROM THE TAX NET CAPITAL MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 5 GAINS WHICH WERE RELATIVELY SMALL. AS AN ADDITIONAL MEASURE TO OFFSET THE EFFECT OF INFLATION, ALL APPR ECIATION BEFORE 1.4.1974 IN THE VALUE OF ASSETS WAS EXCLUDED FROM TAXATION. A FAIR METHOD OF ALLOWING RELIEF FOR THES E FACTORS IS TO LINK IT TO THE PERIOD OF HOLDING. FOR THIS PU RPOSE, THE COST OF ACQUISITION OF AND THE COST OF IMPROVEMENT TO THE ASSET ARE TO BE INFLATED TO ARRIVE AT THE INDEXED C OST OF ACQUISITION AND INDEXED COST OF IMPROVEMENT AND THE N DEDUCT THESE AMOUNTS FROM THE SALE CONSIDERATION TO ARRIVE AT THE LONG-TERM CAPITAL GAINS. THE CUT-OFF DATE FOR ASSETS HELD FOR PURPOSES OF INDEXATION IS TAKEN AS 1.4.1981. ACCORDINGLY, FOR AN ASSET ACQUIRED BEFORE THIS DATE ITS VALUE AS ON 1.4.1981 WILL BE TAKEN FOR IND EXATION. THE COST OF IMPROVEMENT AFTER THIS DATE ONLY WILL B E TAKEN INTO ACCOUNT FOR INDEXATION.' 14. AS EXPLAINED IN PARA NO. 35 OF THE AFORESAID CI RCULAR, THE FIXED PERCENTAGE METHOD FOLLOWED EARLIER BY ALLOWING DEDU CTION U/S 48(2) WAS DEPENDENT ON THE NATURE AND STATUS OF THE ASSES SEE, BUT WAS UNRELATED TO THE LENGTH OF PERIOD OF HOLDING. THIS DEDUCTION WAS INTENDED TO GIVE A ROUGH AND READY RELIEF FOR INFLA TION. IT WAS, HOWEVER, FELT THAT A FAIR METHOD OF ALLOWING RELIEF FOR THES E FACTORS WOULD BE TO LINK IT TO THE PERIOD OF HOLDING AND FOR THIS PURPO SE, PROVISIONS HAVE BEEN MADE TO INFLATE THE COST OF ACQUISITION OF THE ASSET AND COST OF IMPROVEMENT OF THE ASSET SO AS TO ARRIVE AT THE IND EXED COST OF ACQUISITION AND INDEXED COST OF IMPROVEMENT AND DED UCT THESE AMOUNTS FROM THE SALE CONSIDERATION TO ARRIVE AT TH E LONG TERM CAPITAL GAINS. IT IS THUS CLEAR THAT THE LEGISLATIVE INTENT ION TO INTRODUCE THE CONCEPT OF 'INDEXED COST OF ACQUISITION' AND 'INDEX ED COST OF IMPROVEMENT' IN THE STATUTE HAS BEEN TO ALLOW DEDUC TION WHILE COMPUTING THE CAPITAL GAINS ON THE BASIS OF LENGTH OF THE PERIOD OF HOLDING OF THE CAPITAL ASSET. IN THIS SITUATION, IF THE MEANING TO 'INDEXED COST OF ACQUISITION' AS SOUGHT TO BE GIVEN BY THE LD. D.R. RELYING ON EXPLANATION (III) TO SECTION 48 IS ASSIG NED, THE LENGTH OF PERIOD OF HOLDING OF THE CAPITAL ASSET BY THE PREVI OUS OWNER WOULD GET COMPLETELY EXCLUDED WHILE GIVING THE BENEFIT OF IND EXATION. SUCH AN INTERPRETATION THUS WILL LEAD TO ABSURDITY AND UNJU ST RESULT WHICH, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF K. P. VARGHESE (SUPRA), HAS TO BE AVOIDED. MOREOVER, IT WILL DEFEA T THE VERY PURPOSE OF INTRODUCING THE CONCEPT OF 'INDEXED COST OF ACQUISI TION' IN THE STATUTE. THE SETTLED PRINCIPLE OF STATUTORY INTERPRETATION W ITH REFERENCE TO TAX LAWS IS THAT THE WORDS IN THE 'STATUTE' ARE TO BE U NDERSTOOD IN THE SENSE IN WHICH THEY BEST HARMONIZE WITH THE SUBJECT OF THE ENACTMENT AND OBJECT WHICH THE LEGISLATURE HAS IN VIEW. THIS IS ALSO KNOWN AS RULE OF PURPOSIVE CONSTRUCTION. AS HELD BY THE HON'BLE S UPREME COURT IN THE CASE OF C.W.S. (INDIA) LTD. VS. CIT, 208 ITR 649, T HE OBJECT OF ALL RULES OF INTERPRETATION IS TO GIVE EFFECT TO THE OBJECT O F ENACTMENT AND SUCH OBJECT OR LEGISLATIVE INTENTION, CAN BE GATHERED FR OM THE MEMORANDUM EXPLAINING THE RELEVANT PROVISIONS. 15. IT IS ALSO OBSERVED THAT IF THE INTERPRETATION AS SOUGHT BY THE LD. D.R. IS ASSIGNED TO EXPLANATION (III) TO SECTION 48 , THERE WOULD BE A MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 6 RESULTANT CONFLICT BETWEEN THE SAID CLAUSE (IN) AND CLAUSE (IV) OF THE EXPLANATION WHICH READ AS UNDER: (III) 'INDEXED COST OF ACQUISITION' MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTIO N AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSE T 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 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 INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N INDEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; AS IS CLEARLY EVIDENT FROM THE AFORESAID CLAUSE (IV ), IT PERMITS THE INDEXATION OF COST OF ANY IMPROVEMENT UNCONDITIONAL LY AND IF THE SAME IS READ WITH SECTION 55(1)(B)(II) WHICH ALLOWS DEDU CTION FOR COST OF IMPROVEMENT INCURRED BY A PREVIOUS OWNER, THE POSIT ION WHICH EMERGES IS THAT COST OF ANY IMPROVEMENT TO THE CAPI TAL ASSET INCURRED BY THE PREVIOUS OWNER IS ALSO ELIGIBLE FOR INDEXATI ON. THIS WILL RESULT IN AN APPARENT ANOMALY IN AS MUCH AS THE COST OF IMPRO VEMENT INCURRED BY THE PREVIOUS OWNER WOULD BE ELIGIBLE FOR INDEXAT ION ON THE BASIS OF YEAR IN WHICH THE SAID IMPROVEMENT WAS DONE BY THE PREVIOUS OWNER WHEREAS IN CASE OF COST OF ACQUISITION, THE YEAR OF ACQUISITION OF THE ASSET, BY THE ASSESSEE WOULD BE RELEVANT FOR INDEXA TION, PURPOSE AND NOT THE YEAR OF ACQUISITION BY THE PREVIOUS OWNER, WHICH IS BEYOND ANY LOGICAL COMPREHENSION. 16. IT IS ALSO RIOTED THAT IF THE INTERPRETATION AS SOUGHT BY THE LEARNED D.R. IS ASSIGNED TO CLAUSE (III) OF EXPLANA TION TO SECTION 48, IT WOULD LEAD TO SUCH WORKING OF INDEXED COST OF ACQUI SITION IN SOME CASES WHICH IS TOTALLY ILLOGICAL AND UNREASONABLE. FOR INSTANCE, IN THE CASE WHERE CAPITAL ASSET HAS BECOME A PROPERTY OF T HE ASSESEE UNDER A GIFT PRIOR TO THE CUT OFF DATE OF 1.4.1981 BUT TH E SAME IS TRANSFERRED BY HIM ONLY AFTER 1.4.1981; SAY IN FINANCIAL YEAR 1 987-88, THE YEAR TO BE ADOPTED FOR INDEXATION AS PER THE CONTENTION OF THE LEARNED D.R., WOULD BE FINANCIAL YEAR 1987-88. HOWEVER, THE COST OF ACQUISITION OF CAPITAL ASSET IN SUCH CASE WOULD BE TAKEN AS FAIR M ARKET VALUE OF 1.4.1981 BEING THE CUT OFF DATE EMBEDDED IN THE IND EXATION SCHEME AS AGREED EVEN BY THE LEARNED D.R. THE SITUATION, WILL THUS ARISE WHERE THE COST OF ACQUISITION OF CAPITAL ASSET WOULD BE T AKEN AS OF 1.4.1981 WHEREAS THE COST INFLATION INDEX FOR THE YEAR 1987- 88 WOULD BE APPLIED TO THE SAID COST TO WORK OUT THE INDEXED COST OF AC QUISITION. SUCH A WORKING WILL NOT STAND TO ANY REASONABILITY OR LOGI C AND WILL CERTAINLY DEFEAT THE VERY PURPOSE OF INDEXATION SCHEME AS EXP LAINED IN THE AFORESAID CIRCULAR NO. 636 DATED 31.8.90. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ITA NO.3781/M/2010 7 17. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PROPERTY OF THE ASSESSEE UNDER GIFT, THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST O F ACQUISITION AS ENVISAGED IN EXPLANATION (III) TO SECTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HEL D BY THE PREVIOUS OWNER. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTE D WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. 4. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBU NAL, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) AND DISMISS THE GROUND RAISED BY THE REVENUE. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.8.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH AUGUST 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, B BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI