ITO Vs. Sudip Roy (ITAT Kolkata)
In the present case the assessing officer has applied cost inflation index applicable for financial year 2002-2003 being the year in which the assessee inherited the property. The words “the year in which the assessee first held the capital assets” is interpreted by him to be the year in which the assessee succeeded to the assets. We find that section 2(42A) also uses a somewhat similar expression. Explanation 1 to section 2(42A) provides that in determining the period for which any capital asset is held by the assessee, in the case of a capital asset which become the property of the assessee, in any of the circumstances mentioned in section 49(1), there shall be included the period for which the asset is held by the previous owner. If for the purpose of determining the period of holding of the capital asset by an assessee, the period for which the previous owner has held the capital asset is to be included, then different consideration cannot be applied for the purpose of section 48. If sections 2(42A), 47(iii), 49(1)(ii)(iii) and section 55(2)(b)(ii) are read co-jointly then it appears that in law no “transfer” of a “capital asset” is considered to take place on inheritance and succession. The liability for capital gain arises only when the capital asset is actually transferred by the successor. It is only when the ultimate successor transfers the capital asset for a consideration the capital gains are assessed to tax. In assessing capital gain in the hands of successor, date of acquisition and period of holding, is determined taking into consideration the date on which and the cost of which the first owner acquires the capital asset. It is for this reason section 2(42A) uses the expression “in determining the period for which capital asset is held by the assessee”. Section 48 of the Income Tax Act incorporates computation mechanism for qualifying the ‘capital gain’ and therefore the expressions used in the computation formula should be given schematic interpretation. The scheme of taxation of “capital gain” can however, be understood by applying provisions of sections 2(42A), 2(47), 47(ii), 48, 49(i)(ii) and 55(2)(b)(ii) of the Act. As per the provisions of these sections, where an assessee sells an inherited capital asset, the capital gain is computed with reference to the period of holding and cost of acquisition incurred by the previous owner.
As assessee inflated market value of property as on 1-4-1981 with motive of avoiding capital gain, action of AO in making reference to DVO while not accepting valuation shown by assessee on basis of registered valuer’s report was well permissible under law.
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