ACIT 11(2), MUMBAI V. AJAY I.. THAKORE, MUMBAI

ITA 6917/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3984 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURLI
• Assessee Lawyers: AJAY INDRAJIT THAKORE
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value; Capital receipt

Judgement Text

, ,, ,' '' ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A,BENCH , , BEFORE S/SHJOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./ITA/6917 /MUM/2011 , / ASSESSMENT YEARS: 2008-09 ACIT-11(2) ROOM NO.479, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. SHRI AJAY I. THAKORE 1416, DALAMAL TOWER, FREE PRESS JOURNAL MARG, NARIMAN POINT,MUMBAI-400 021. PAN:AABPT 0802 G ./ITA/6602/MUM/2011 , / ASSESSMENT YEARS: 2008-09 SHRI AJAY I. THAKORE MUMBAI-400 021. VS. ACIT-11(2) MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M.MURLI ASSESSEE BY: SHRI AJAY INDRAJIT THAKORE / DATE OF HEARING: 23.03.2016 / DATE OF PRONOUNCEMENT: 13.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDER DT.25/7/2011 OF THE CIT(A)-3 MUMBAI THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED THE CROSS APPEALS FOR THE YEA R UNDER CONSIDERATION RAISING VARIOUS GROUNDS OF APPEAL.ASSESSEE, AN INDIVIDUAL FILED HIS RETURN OF INCOME ON 20/07/2008 DECLARING TOTAL INCOME OF RS.56.22 LAKHS.THE AO COMPLETED THE ASSESSMENT U/S.143(3)OF THE ACT ON 21. 12.2010,DETERMINING THE INCOME OF THE ASSESSEE AT R S.2.40 CRORES. ITA NO.6917/MUM/2011(A.Y. 2008-09)REVENUES APPEAL : 2. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SOLD HIS HALF SHARE IN TENANCY RIGHT OF A PROPERTY,FOR RS.1.83 CRORES,THAT THE TENANCY RIGHT IN THE PROPERTY WAS RECEIVED BY THE ASSESSEE IN INHERITANCE,THAT HE HAD CLAIMED THE SALE PROCEED OF TENANCY RIGHT AS CAPITAL RECEIPT AND STATED THAT SAME WAS NOT TAX ABLE WITHIN THE MEANING OF SECTION 55(2)(II) OF THE ACT.HOWEVER,THE AO DID NOT AGREE WITH THE AS SESSEE AND HELD THAT ASSESSEES CLAIM FOR TAKING THE SALE PROCEEDS RECEIVED AGAINST THE TENAN CY RIGHT WAS CAPITAL RECEIPTS WAS NOT AS PER LAW,THAT THE RECEIPT IN QUESTION WAS TAXABLE WITHIN THE MEANING OF SECTION 45 R.W.S.49 AND 55(2) OF THE ACT.THE AO REFERRED THE MATTER TO THE JCIT U/S. 144A OF THE ACT,WHO OBSERVED THAT THE ASSESSEE HAD NOT DENIED THAT THE TENANCY R IGHT WAS A CAPITAL ASSET, THAT THERE WAS TRANSFER OF TENANCY RIGHT IN RESPECT OF IMMOVABLE P ROPERTY, THAT THE CONSIDERATION RECEIVED ON TRANSFER OF TENANCY RIGHT WAS CAPITAL RECEIPT.HE RE FERRED TO THE PROVISIONS OF SECTION 49 AND SECTION 55(2)OF THE ACT AND HELD THAT IN THE CASE U NDER CONSIDERATION THE FATHER OF THE ASSESSEE HAD ACQUIRED THE TENANCY RIGHT WITHOUT PAYMENT OF A NY MONEY, THAT THE COST OF ACQUISITION HAD TO BE TAKEN AS NIL IN THE HANDS OF THE FATHER OF TH E ASSESSEE AS PER THE PROVISIONS OF SECTION 55(2)(A) OF THE ACT, THAT THERE WAS NO COST OF ANY IMPROVEMENT INCURRED OR BORNE BY THE FATHER OF THE ASSESSEE OR BY THE ASSESSEE HIMSELF,THAT THE COST OF ACQUISITION SHALL BE NIL IN THE HANDS OF THE ASSESSEE,THAT THE ENTIRE SALE CONSIDERATION OF RS.1.83 CRORES HAD TO BE ASSESSED TO TAX UNDER THE HEAD LTCG, THAT THE FAIR MARKET VALUE OF THE TENANCY RIGHT AS ON 01.04.1981 COULD NOT BE CONSIDERED FOR DETERMINING THE TAX LIABILITY ,THAT THE CLAUSE (B) TO SECTION 55(2) WAS NOT APPLICABLE IN RESPECT OF THE TENANCY RIGHT WHILE CO MPUTING THE COST OF ACQUISITION.IN VIEW OF 6917/M/2011-AJAY.T 2 THE DIRECTION OF THE JCIT THE AO ASSESSED THE ENTIR E SALE CONSIDERATION OF RS.1,83,33,334/- AS LTCG. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IT WAS CONTENDED THAT THE ASSESSEE INHERITED HALF SHARE IN THE TENANCY RIGHTS ALONG WITH HIS BROTHER, THAT THE FAC T OF TENANCY IT WAS NOT IN DISPUTE, THAT HE HAD RECEIVED FOR TRANSFER OF HIS HALF SHARE OF INHERITE D TENANCY RIGHT A CONSIDERATION OF RS. 1.83 CRORES,THAT THE CONSIDERATION RECEIVED BY HIM FELL UNDER THE EXEMPTED PORTION OF SECTION 55 (A) (2) (II) OF THE ACT, THAT SECTION 55 (2) WAS AM ENDED WITH EFFECT FROM 1/4/1995 TO SUPERSEDE THE CERTAIN EXCLUSIONS, THAT THE NEW PROVISIONS PRO VIDED THAT FOR THE PURPOSE OF SECTION 49 AND 48 THE COST OF ACQUISITION IN ANY OTHER CASE HAD TO BE TAKEN AS NIL, THAT AS PER THE PROVISIONS OF SECTION49(1)(III)(A)WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY SUCCESSION, INHERITANCE OR DEVOLUTION, THE COST OF ACQUISITION OF THE ASSET WOULD BE DEEMED TO BE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED A T HAS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASSESSEE INCURRED OR BORNE BY TH E PREVIOUS OWNER FOR THE ASSESSEE AS THE CASE MIGHT BE,THAT EXPLANATION PROVIDED THAT THE EX PRESSION PREVIOUS OWNER OF THE PROPERTY IN RELATION TO ANY CAPITAL ASSET OWNED BY AN ASSESSEE MEANT THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY ORDER OF ACQUISITION OTHER THAN THAT REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE(IV) OF THE SUBSECTION,THAT THE ASSES SEE HAD INHERITED TENANCY RIGHTS FROM HIS FATHER,THAT THE EXCEPTION PROVIDED BY WAY OF SECTIO N 55(2)(A) (II) WOULD BE APPLICABLE, THAT THE PROVISIONS PROVIDING THAT COST OF TENANCY RIGHTS WO ULD BE TAKEN AS NIL WOULD NOT BE APPLICABLE TO THE FACTS OF THE CASE,AS THE CASE OF THE ASSESSE E CLEARLY FELL UNDER SECTION 49(1) (II) OF THE ACT.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND THE ASSESSMENT ORDER,THE FAA HELD THAT SECTION 49(1)(II) WAS AN EXCEPTION TO THE MAIN PROVISIONS PROVIDED UNDER SECTION 55 (2) OF THE ACT AND THEREFORE THE COST COULD NOT BE TAKE N AS NIL,THAT IN CASE OF THE ASSESSEE THE LAW TO PRIOR TO ASSESSMENT YEAR 1995-96 WOULD APPLY,THA T THE CAPITAL ASSETS IN LIGHT OF THE PROVISIONS OF SECTION 45 AND 48 OF THE ACT COULD BE DIVIDED INTO THREE CATEGORIES-A.)ASSETS WHERE THERE IS NO COST,B.)ASSETS WHERE THERE IS COS T. IN SUCH CASES COST AND COST OF IMPROVEMENT OR AT THE OPTION OF THE ASSESSEE FAIR M ARKET VALUE AS ON 1/04/1981+ INDEXED COURSE OF IMPROVEMENT IS TO BE CONSIDERED C.)NIL CO ST IS PROVIDED BY SECTION 55 WITH EFFECT FROM 1/4/1996 APPLICABLE TO SOME CATEGORY OF ASSETS BY FICTION OF LAW BARRING THE SETS FALLING UNDER SECTION 49 (1),THAT IN THE CASE OF THE ASSESS EE FMV AS ON 01.04.1981 WAS TO BE ADOPTED FOR DETERMINING THE TAXABLE CAPITAL GAINS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND ASSESSMENT ORDER,THE FAA HELD THAT ASSESSEE WAS NOT JUSTIFIED IN CLAIMING THE AMOUNT R ECEIVED BY HIM WAS NOT TAXABLE AS LTCG, THAT PROVISIONS OF SEC.55(2)WERE AMENDED FROM 1.4.9 5,THAT LAW AS STOOD PRIOR TO 1996 WILL NOT BE APPLICABLE,THAT THE ASSESSEE HAD ACQUIRED TH E INHERITED TENANCY RIGHT IN PROPERTY FROM HIS FATHER, THAT THE PROVISIONS OF SEC 55(2)(A) WOU LD BE APPLICABLE.HE REFERRED TO PROVISIONS OF SEC.48,49 & 55(2) OF THE ACT AND HELD THAT THE ASSE SSEE HAD EXERCISED ITS OPTION TO SUBSTITUTE THE FMV AS ON 1.4.1981, THAT THE FMV AS PER VALUATI ON DONE BY REGISTERED VALUER HAD TO BE CONSIDERED FOR INDEXATION.THE FAA REFERRED TO THE C ASE OF VIJAY RATHORE (204 TAXATION 193)AND HELD THAT PROPERTY IN QUESTION WAS ACQUIRED BY THE AA BY WAY OF INHERITANCE FROM HIS FATHER, WHO HELD IT PRIOR TO 1981,THAT AS PER THE P ROVISIONS OF SECTION 55(2)(B)(I) OF THE ACT THE MARKET VALUE AS ON 01. 04. 81 AS DETERMINED BY THE VALUER,WAS TO BE CONSIDERED FOR COMPUTING INDEXED COST.HE ALSO REFERRED TO THE CASE OF MANJULA J SHAH (35SOT105) AND DIRECTED THE AO TO RE-COMPUTE INDEXED COST.HE REFER RED TO THE VALUE DETERMINED BY THE VALUER AS ON 01.04.48 LACS AND INDEXED IT TO RS.79,81,237/ -.ACCORDINGLY,HE HELD THAT LTCG WOULD BE COMPUTED AT RS.1,03,52,098/-(1,83,33,334/(-)RS.7 9,81,235/-)AS AGAINST RS.1.83,DETERMINED BY THE AO. 6917/M/2011-AJAY.T 3 4. DURING THE CURSE OF HEARING BEFORE US,THE DEPARTMEN TAL REPRESENTATIVE(DR)STATED THAT THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE I.E. RS.1.83 CRORES WAS TAXABLE,THAT THE COST OF ACQUISITION OF TENANCY RIGHT WAS TO BE TAKEN AS NIL ,THAT PROVISIONS OF SEC.55(2)(B) WERE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE UNDER CONSIDERATION. THE ASSESSEE STATED THAT WHOLE CONSIDERATION RECD B Y THE ASSESSEE WAS CAPITAL RECEIPT AND NOT LIABLE TO TAX U/S.55(2)(A) OF THE ACT.HE ALTERNATIV ELY STATED THAT FMV AS ON 01.4.81 PLUS THE INDEXING WORKED OUT BY USING COST INFLATION INDEX I N REVERSE MANNER SHOULD HAVE BEEN ALLOWED. THAT PROVISIONS OF SEC. 49(A) WERE APPLICA BLE TO THE FACTS OF THE CASE,THAT IN CASE OF TENANCY CAPITAL GAIN WAS NOT TAXABLE.HE REFERRED TO THE CASE OF D.P. SANDU BROS. CHEMBUR P. LTD.(273 ITR 1),TARA AGENCIES (292 ITR444) AND B.SR INIVASA SHETTY (128 ITR294) 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD SOLD HALF OF THE TENANCY RIGHT OF A PROPERTY THAT WAS ACQUIRED BY HIS LATE FATHER,THAT THE PROPERTY WAS ACQUIRED B EFORE THE YEAR 1981,THAT THE PROPERTY WAS SOLD FOR RS.1.83 CRORES,THAT HE HAD CLAIMED THAT NO TAX WAS PAYABLE ON SALE OF THE TENANCY RIGHT OF THE PROPERTY,THAT THE AO HAD TAXED THE ENT IRE AMOUNT,THAT THE FAA HAD GIVEN PART RELIEF TO THE ASSESSEE.BEFORE PROCEEDINGS,FURTHER,W E WOULD LIKE TO REFER TO CERTAIN PRINCIPLES GOVERNING THE PROVISIONS OF SECTIONS 48,49 AND 55 O F THE ACT AND THEY STIPULATE AS UNDER: I. SECTION 48 OF THE ACT DEALS WITH THE MODE OF COMPUT ATION OF CAPITAL GAINS,WHEREAS SECTION 49 REFERS TO COST WITH REFERENCE TO CERTAIN MODES O F ACQUISITION ARE MACHINERY PROVISIONS RELATING TO THE ASSESSMENT OF CAPITAL GAINS MEANT F OR COMPUTING THE CAPITAL GAINS UNDER DIFFERENT CIRCUMS -TANCES.SECTIONS 48,49 AND 55 ARE NOT CHARGING SECTIONS. II. SECTION 49 OF THE ACT STIPULATES COST OF ACQUISITIO N WITH REFERENCE TO THE SPECIFIED MODES OF ACQUISITION.SECTIONS 47 AND 49 OF THE ACT GO TOGETH ER AND HAVE TO BE READ AS PART OF ONE SCHEME,THE LEGISLATIVE INTENT BEING THAT WHEN THE F IRST TRANSACTION IS NOT BROUGHT TO CHARGE,THE ASSESSEE HAVING BENEFITED ONCE,SHOULD NOT BENEFIT O NCE AGAIN BY CLAIMING A HIGHER COST AT THE TIME OF A SUBSEQUENT TRANSACTION. IIII. SECTION 49 OF THE ACT DEALS WITH THE COST WITH REFE RENCE TO CERTAIN MODES OF ACQUISITION AND SAME IS PROVIDED IN SUB-CLAUSES (I) TO (IV) OF THE SECTION.IT FURTHER PROVIDES THAT THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT,AS INCREASED BY THE COST OF AN Y IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR THE ASSESSEE, AS THE CASE MAY BE. IV. THE OPTION UNDER SECTION 55 TO TAKE THE COST OF ACQ UISITION OF THE ASSET AS THE FAIR MARKET VALUE OF THE ASSET AS ON 01.01.1981, OR AT THE ACTU AL COST INCURRED BY THE ASSESSEE, AT THE OPTION OF THE ASSESSEE,IS INDEPENDENT OF SECTION 48 WHICH DEALS WITH MODE OF COMPUTATION. IT IS ONLY AFTER WORKING OUT THE COST OF ACQUISITION W ITHIN THE MEANING OF SECTION 55 THAT THE CAPITAL GAINS COULD BE COMPUTED UNDER SECTION 48. 5.1. IT WOULD BE USEFUL THE REFER TO THE MATTER OF MINA DEOGUN(375ITR586).THE FACTS OF THE CASE WERE AS UNDER THAT A RESIDENTIAL HOUSE SITUATE AT PREMISES NO. 47, GOLF LINKS, NEW DELHI, WAS PURCHASED BY SARDAR PRATAP SINGH ON 16.04.1958, THAT HE DIED ON 29.06.1968,THAT THE AFORESAID PROPERTY DEVOLVED ON HER WIDOW, WHO DIED ON 16.09.1999, THAT, THE ASSESSEE AND HER THREE SISTERS SUCCEEDED TO THE PROPERTY IN EQUA L SHARES. DURING THE FINANCIAL YEAR 2003-04 THE PROPERTY WAS SOLD AT A SUM OF RS. 12 CRORES. TH E SHARE OF THE ASSESSEE IN THE SALE PROCEEDS WAS A SUM OF RS. 3 CRORES.MATTER TRAVELLED UP TO TH E HONBLE CALCUTTA HIGH COURT, WHEREIN FOLLOWING QUESTION ABOUT VALUATION OF THE PROPERTY WAS FRAMED 6917/M/2011-AJAY.T 4 (B)WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME-TAX APPELLATE TRIBUNAL IS CORRECT IN APPLYING THE COST INFLATION INDEX WITH EFFECT FROM APRIL 1, 1981, INSTEAD OF THE YEAR 1999-2000, IN WHICH THE ASSESSEE INHERI TED THE PROPERTY, CONTRARY TO THE PROVISIONS OF EXPLANATION (III) TO SECTION 48 OF TH E INCOME-TAX ACT, 1961, TO THE EFFECT THAT IT WOULD BE APPLIED WITH EFFECT FROM THE FIRST YEAR IN WHICH THE ASSESSEE HELD THE PROPERTY, OR APRIL 1, 1981, WHICHEVER IS LATER, ON THE GROUND TH AT A LITERAL INTERPRETATION OF THE PROVISIONS WAS TO BE DISCARDED ? DECIDING THE MATTER,THE HONBLE COURT HELD AS FOLLO W: 10.SECTION 49 REFERRED TO IN THE AFORESAID CLAUSE (B) OF EXPLANATION 1 PROVIDES FOR VARIOUS CIRCUMSTANCES INCLUDING ACQUISITION BY SUCCESSION, INHERITANCE OR DEVOLUTION. THEREFORE, THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER, NAMELY, THE MOTHER OF THE ASSESSEE CAN ALSO BE INCLUDED TO THE PERIOD OF HOLDING OF THE PROPERTY B Y THE ASSESSEE. THE MOTHER HELD THE PROPERTY SINCE 1968, AS INDICATED ABOVE. HERE IS, AS SUCH, T HE REASON WHY THE ASSESSEE IN THE CASE BEFORE US CAN BE SAID TO HAVE HELD THE PROPERTY SINCE 1968. I N ORDER TO ASCERTAIN THE COST OF ACQUISITION TO THE ASSESSEE REFERENCE CAN ALSO BE MADE TO SECTION 55(2 )(B)(II) WHICH READS AS FOLLOWS : '(II) WHERE THE CAPITAL ASSET BECAME THE PROPERTY O F THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN SUB-SECTION (1) OF SECTION 49, AND THE CAPITAL ASSE T BECAME THE PROPERTY OF THE PREVIOUS OWNER BEFORE THE 1ST DAY OF APRIL, 1981, MEANS THE COST O F THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF AP RIL, 1981, AT THE OPTION OF THE ASSESSEE.' 11.BASED ON THE AFORESAID PROVISION THE COST OF ACQ UISITION OF CAPITAL ASSET AT THE OPTION OF THE ASSESSEE IS THE FAIR MARKET VALUE OF THE ASSET ON A PRIL 1,1981. WHEN THAT IS PERMISSIBLE IN LAW, INDEXATION ON THE FAIR MARKET VALUE AS ON APRIL 1, 1981, UNTIL THE DATE OF TRANSFER HAS TO BE ALLOWED. ANY OTHER INTERPRETATION WILL NOT ONLY LEAD TO ABSU RD RESULT BUT SHALL ALSO CAUSE IMMENSE PREJUDICE TO THE ASSESSEE. IF THE PREVIOUS OWNER, THAT IS TO SAY, THE MOTHER, HAD NOT DIED AND IF SHE HERSELF HA D SOLD THE PROPERTY IN THE YEAR 2003, SHE WOULD HAVE GOT THE BENEFIT OF INDEXATION ON THE FAIR MARKET VALUE AS AT 1ST APRIL, 1981. 12. WE ARE SUPPORTED IN OUR VIEW BY A JUDGMENT OF T HE GUJARAT HIGH COURT IN THE CASE OF CIT V. RAJESH VITTHALBHAI PATEL REPORTED IN[2013]37 TAXMAN N.COM 439 WHEREIN THE FOLLOWING VIEWS WERE EXPRESSED : '7. UNDER SECTION 48 OF THE ACT,THUS CAPITAL GAIN I S COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER, THE AMOUNTS OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER, THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO. THE TERM 'COST OF ACQUISITION OF THE ASSET' IS EXPLAINED IN EXPLANATION (III) TO SECTION 48. IN TE RMS OF SUCH EXPLANATION, INDEXED COST OF ACQUISI TION WOULD BE AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS THE COST INFLATION 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 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER. IN SIMPLE WORDS , THERE FORE, FOR AN ASSET ACQUIRED PRIOR TO APRIL 1, 1981, THE INDEXED COST OF ACQUISITION WOULD BE T HE COST OF ACQUISITION MULTIPLIED BY THE RATIO OF THE COST INFLATION INDEX IN THE YEAR IN WHICH AS SESSEE'S ASSET IS TRANS FERRED TO THE COST OF INFLATION INDEX FOR THE YEAR BEGINNING ON APRIL 1, 1981. IT WAS, THEREFORE, THAT THE TRIBUNAL IN OUR OPINION CORRECTLY HELD THAT THE INDEXED COST OF ACQ UISITION SHALL HAVE TO BE WORKED OUT WITH REFERENCE TO APRIL 1, 1981, SINCE, IN THE PRESENT C ASE, THE ASSET WAS ACQUIRED BY THE PREVIOUS OWNER OF THE PROPERTY. LEARNED COUNSEL FOR THE REVE NUE, HOWEVER, SUBMITTED THAT SUCH INTERPRETATION WOULD FAIL TO TAKE INTO ACCOUNT THE EXPRESSION 'COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE'. IN HI S OPINION, THE 'ASSESSEE' REFERRED TO UNDER SUCH EXPRESSION WOULD BE THE PRESENT ASSESSEE AND NOT TH E PREVIOUS OWNER. IN OUR OPINION, SUCH INTERPRE TATION CANNOT BE ACCEPTED. WE SAY SO FOR T HE FOLLOWING REASONS. FIRSTLY, BY VIRTUE OF A DEEMING FICTION PROVIDED IN SUB-SECTION (1) OF SECT ION 49, COST OF ACQUISITION IN HANDS OF THE ASSESSEE WOULD BE THE COST FOR WHICH THE PREVIOUS O WNER OF THE PROPERTY ACQUIRED IT. IT IS FOR THIS PURPOSE THAT WE NEED TO FALL BACK ON COMPUTATION PR OVISION OF SECTION 48. WHEN WE DO SO, WE WORK OUT THE COST OF ACQUISITION OF THE ASSET IN TH E HANDS OF PREVIOUS OWNER. WHILE DOING SO, WE CANNOT TRANSPOSE THE ASSESSEE IN EXPLANATION (III) OF SECTION 48. DOING SO, WOULD AMOUNT TO FALLING SHORT OF GIVING FULL EFFECT TO THE DEEMING FIC TION CONTAINED IN SUB-SECTION (1) OF SECTION 6917/M/2011-AJAY.T 5 49. TO OUR OPINION SUCH DEEMING FICTION MUST BE ALL OWED TO HAVE ITS FULL PLAY. AS IS OFTEN STATED, A DEEMING FICTION MUST BE ALLOWED ITS FULL APPLICAT ION AND SHOULD NOT BE ALLOWED TO BOGGLE. 8. ADDITIONALLY WE NOTICE THAT IN SUB-SECTION (1) O F SECTION 49, THE LEGISLATURE HAS PROVIDED THAT COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY ANY COST OF I MPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR THE ASSESSEE, AS THE CASE MAY BE. IF THE INTERPRETATION OF THE COUNSEL FOR THE REVENUE WAS COR RECT, THIS LATER REFERENCE TO THE C OST OF IMPROVEMENT BORNE BY THE ASSESSEE WOULD NOT HAVE BEEN NECESSARY SINCE SECTION 48 ITSE LF WOULD TAKE CARE OF ANY IMPROVEMENT ON THE CAPITAL ASSET TO BE INCLUDED FOR THE COST OF AC QUISITION. IT IS PRECISELY BECAUSE SUCH IMPROVEMENT REFERRED TO IN SECTION 48 WOULD HAVE RE FERENCE ONLY TO THAT MADE BY THE PREVIOUS OWNER THAT THE ADDITIONAL PROVISION HAD TO BE MADE IN THE DEEMING FICTION PROVIDED IN SUB- SECTION (1) OF SECTION 49. FURTHER, THE INTERPRETAT ION SOUGHT TO BE GIVEN BY THE REVENUE WOULD BE UNAC CEPTABLE BECAUSE THERE IS NO PROVISION UNDER W HICH THE COST OF ACQUI SITION IN THE HANDS OF THE ASSESSEE IN CASES SUCH AS GIFT ON THE DATE OF A CQUISITION OF THE PROPERTY CAN BE MADE AND FOUND IN THE ACT. A SERI OUS ROAD-BLOCK WOULD BE CR EATED IF SUCH PROPERTY IS ACQUIRED THROUGH WILL AND WOULD, THEREFORE, HAVE NO REFERENCE TO ITS ACTUAL COST ON THE DATE OF OPERATION OF THE WILL.' 13.MR. MURARKA HAS ALSO RELIED UPON A JUDGMENT OF C IT V. MANJULA J. SHAH REPORTED IN [2013] 355 ITR 474 (BOM)AND REFERRED TO PARAGRAPHS 21 TO 24 OF THE JUD GMENT WHICH ARE AS UNDER (PAGE 482) : 'TO ACCEPT THE CONTENTION OF THE REVENUE THAT THE W ORDS USED IN CLAUSE (III) OF THE EXPLANATION TO SECTION 48 OF THE ACT HAS TO BE READ BY IGNORING TH E PROVISIONS CONTAINED IN SECTION 2 OF THE ACT RUNS COUNTER TO THE ENTIRE SCHEME OF THE ACT. SECTI ON 2 OF THE ACT EXPRESSLY PROVIDES THAT UNLESS THE CONTEXT OTHERWISE REQUIRES, THE PROVISIONS OF T HE ACT HAVE TO BE CONSTRUED AS PROVIDED UNDER SECTION 2 OF THE ACT. IN SECTION 48 OF THE ACT, THE EXPRESSION 'ASSET HELD BY THE ASSESSEE' IS NOT DEFINED AND, THEREFORE, IN THE ABSENCE OF ANY INTEN TION TO THE CON TRARY THE EXPRESSION 'ASSET HELD BY THE ASSESSEE' IN CLAUSE (III) OF THE EXPLANATION TO SECTION 48 OF THE ACT HAS TO BE CONSTRUED IN CONSO NANCE WITH THE MEANING GIVEN IN SECTION 2(42A ) OF THE ACT. IF THE MEANING GIVEN IN SECTION 2(42A) IS NOT ADOPTED IN CONSTRUING THE WOR DS USED IN SECTION 48 OF THE ACT, THEN THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIR ED UNDER A GIFT OR 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 INTEN T CANNOT BE ACCEPTED. APART FROM THE ABOVE, SECTION 55(1)(B)(2)(II) OF TH E ACT PROVIDES THAT WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE M ODES SPECIFIED UNDER SECTION 49(1) OF THE ACT, NOT ONLY THE COST OF IMPROVEMENT INCURRED BY T HE ASSESSEE BUT ALSO THE COST OF IMPROVEMENT INCURRED BY THE PREVIOUS OWNER SHALL BE DEDUCTED FR OM THE TOTAL CONSIDERATION RECEIVED BY THE ASSESSEE WHILE COMPUTING THE CAPITAL GAINS UNDER SE CTION 48 OF THE ACT. THE QUESTION OF DEDUCTING THE COST OF IMPROVEMENT INCURRED BY THE P REVIOUS OWNER IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT WOULD ARISE ONLY IF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IS INCLUDED IN DETERMINI NG THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE ASSESSEE. THEREFORE, IT IS REASONABLE TO HOLD T HAT IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT THE CAPITAL GAINS LIA BILI TY HAS TO BE COMPUTED BY CONSIDERING THAT THE ASSESSEE HELD THE SAID ASSET FROM THE DATE IT WAS H ELD BY THE PREVIOUS OWNER AND THE SAME ANALOGY HAS ALSO TO BE APPLIED IN DETERMINING THE I NDEXED COST OF ACQUISITION. THE OBJECT OF GIVING RELIEF TO AN ASSESSEE BY ALLOW ING INDEXATION IS WITH A VIEW TO OFFSET THE EFFECT OF INFLATION. AS PER CBDT CIRCULAR NO. 636, DATED AUGUST 31, 1992 (SEE [1992] 198 ITR (ST.) 1 ) A FAIR METHOD OF ALLOWING RELIEF BY WAY O F INDEXATION IS TO LINK IT TO THE PERIOD OF HOLDING THE ASSET. THE SAID CIRCULAR FURTHER PROVIDES THAT THE COST OF ACQUISITION AND THE COST OF IMPROVEMENT HAVE TO BE INFLATED TO ARRIVE AT THE IN DEXED COST OF ACQUISITION AND THE INDEXED COST OF IMPROVEMENT AND THEN DEDUCT THE SAME FROM THE SA LE CONSIDERATION TO ARRIVE AT THE LONG-TERM CAPITAL GAINS. IF INDEXATION IS LINKED TO THE PERIO D OF HOLDING THE ASSET AND IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT, TH E PERIOD OF HOLDING 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 FIRST YEAR FOR WHICH TH E SAID ASSET WAS HELD BY THE ASSESSEE. 6917/M/2011-AJAY.T 6 SINCE THE ASSESSEE, IN THE PRESENT CASE, IS HELD LI ABLE FOR LONG-TERM CAPITAL GAINS TAX BY TREATING THE PERIOD FOR WHICH THE CAPITAL ASSET IN QUESTION WAS HELD BY THE PREVIOUS OWNER AS THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE ASSESSEE, THE INDEXED COST OF ACQUISITION HAS ALSO TO BE DETERMINED ON THE VERY SAME BASIS.' 14. FOR THE AFORESAID REASONS, THE SECOND QUESTION IS ANSWERED IN THE AFFIRMATIVE AND AGAINST THE REVENUE. 5.2. IN THE CASE OF RAJA MALWINDER SINGH(334ITR48),THE H ONBLE P& H HIGH COURT HAS HELD THAT EVEN IN A CASE WHERE THE COST OF ACQUISITION C ANNOT BE ASCERTAINED,SECTION 55(3) OF THE ACT STATUTORILY PRESCRIBES THE COST TO BE EQUAL TO THE MARKET VALUE ON THE DATE OF ACQUISITION, THAT THIS BEING THE POSITION, CAPITAL GAINS ARE NOT EXCLUDED EVEN ON THE PLEA THAT THE VALUE OF THE ASSET IN RESPECT OF WHICH CAPITAL GAINS ARE TO BE CHARGED WAS INCAPABLE OF BEING ASCERTAINED,THAT THE VIEW BASED ON THE ASSUMPTION T HAT WHERE THE MARKET VALUE CANNOT BE ASCERTAINED,CAPITAL GAINS CANNOT BE APPLIED, IS NOT CORRECT BEING AGAINST THE STATUTORY SCHEME,THAT IF THE MARKET VALUE CAN BE ASCERTAINED, IT HAS TO BE TAKEN TO BE EQUAL THERETO AND IF THE VALUE CANNOT BE ASCERTAINED, IT HAS TO BE EQUAL TO THE MARKET VALUE ON A SPECIFIED DATE AT THE OPTION OF THE ASSESSEE. 6. NOW,COMING BACK TO THE FACTS OF THE CASE,WE FIND TH AT THE FAA HAD ADOPTED THE FAIR MARKET VALUE AS ON 01.04.1981 FOR THE PROPERTY INHERITED B Y THE ASSESSEE FROM HIS FATHER.CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE ABO VE MENTIONED TWO JUDGMENTS OF THE HONBLE HIGH COURTS WE HOLD THAT THE ORDER OF THE F AA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO, CONFIRMING,HIS ORDER WE DECIDE THE EF FECTIVE GROUND OF APPEAL AGAINST THE AO. ITA/6602/MUM/2011(A.Y.2008-09)ASSESSEES APPEAL: 7. WHILE DECIDING THE APPEAL FILED BY THE AO,WE HAVE H ELD THAT FMV ADOPTED BY THE FAA I.E. AS ON 01.04.1981 WAS AS PER THE PROVISIONS OF THE A CT AND THAT HIS ORDER IS NOT SUFFERING FROM ANY LEGAL INFIRMITY.FOLLOWING THE SAME,WE DECIDE TH E EFFECTIVE GROUND OF APPEAL,FILED BY THE ASSESSEE AGAINST HIM.WE WOULD ALSO LIKE TO MENTION THAT NONE OF THE CASES,RELIED UPON BY THE ASSESSEE,DEAL WITH THE ISSUE BEFORE US. AS A RESULT APPEALS FILED BY THE AO AND THE ASSESSE E STAND DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL, 2016. ! 13 ' , 2016 SD/- SD/- /JOGINDERSINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.