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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – VII, Chennai, dated 09.05.2014 and pertains to assessment year 2006-07. The only capital gain.
Notice was served to the assessee by RPAD. However, the assessee has filed written submission with a request to consider the same to pass an order on merit. Accordingly, we heard the Ld. Departmental Representative and considered the written submission filed by the assessee and proceed to dispose the appeal on merit.
In the written submission, the assessee claimed that he received 75 cents of land by gift through a settlement deed dated 23.01.2004. The mother of the assessee purchased the said land on 25.09.1957 by means of a registered sale deed No.2068 of 1957. The assessee transferred the said land and claimed indexation as on 01.04.1981. However, the Assessing Officer rejected the claim of the assessee and allowed indexation only from 23.01.2004 when the assessee became the owner. The assessee, by placing reliance on the judgement of the Bombay High Court in CIT v. Manjula J. Shah (2012) (204 Taxman 691), claimed in the written submission filed before this Tribunal that the indexation has to be made from 01.04.1981and not from 23.01.2004.
Explanation (iii) to Section 48 of the Income-tax Act, 1961 (in short "the Act), the indexed cost of acquisition has to be made from the first year in which the asset was held by the assessee. In the present case, the asset was held by the assessee only with effect from 23.01.2004. According to the Ld. D.R., the assessee obtained the 75 cents of land through settlement deed only from 23.01.2004 which falls in the financial year 2003-04. Therefore, for the purpose of indexation, the cost of the asset has to be adopted on 01.04.1981 assumes significant and not for indexed cost of acquisition. This distinction is important for working of the capital gain.
We have heard the Ld. D.R. and gone through the written submission filed by the assessee and material available on record.
It is not in dispute that the assessee obtained 75 cents of land from his mother by means of settlement deed dated 23.01.2004. The assessee also sold the land during the year under consideration and claimed capital gain by adopting the value as on 01.04.1981.
The Assessing Officer disallowed the claim on the ground that the asset was owned only on 23.01.2004. Therefore, the value as on 23.01.2004 is to be adopted in respect of the property received by the assessee from his mother. We find that the Bombay High Court in the case of Manjula J. Shah (supra) had an occasion to consider an identical issue. The Bombay High Court, after considering the provisions of Section 48 of the Act, has observed as follows:-
“17. We see no merit in the above contention. As rightly contended by Mr. Rai, Ld.counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost of inflation index for the first year in which the capital asset was ‘held by the assessee’. Since the expression ‘held by the assessee’ is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held by the capital asset from 29.1.1993, , as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29.1.1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 of the Act by treating that the assessee held the capital asset from 29.1.1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition.
If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in computing the capital gains under Section 48 of the Act is accepted, then, the assessee would not be liable for long term capital gains tax, because it is only by applying the deemed fiction contained in Explanation 1(i)(b) to Section 2(42A) and Section 49(1)(ii) of the Act, the assessee is deemed to have held the asset from 29/1/1993 and deemed to have incurred the cost of acquisition and accordingly made liable for the long term capital gains tax. Therefore, when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or Will and the capital gains under Section 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i)(b) to 5 Section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under Section 48 of the Act.”
In view of the above observation of the Bombay High Court on identical issue, this Tribunal is of the considered opinion that the indexed cost of acquisition has to be computed with effect from 01.04.1981. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to compute the indexed cost of acquisition from 01.04.1981 in view of the observation of the Bombay High Court in the case of Manjula J. Shah (supra).
In the result, the appeal of the assessee is allowed.
Order pronounced on 15th May, 2015 at Chennai.