Case Law Details

Case Name : DCIT (Mumbai) Vs. Manjula J. Shah [ITAT Mumbai (Special Bench- B-1)]
Appeal Number : ITA No. 7315/MUM 2007
Date of Judgement/Order : 16/10/2009
Related Assessment Year : 2004-2005
Courts : All ITAT (4457) ITAT Mumbai (1469)

The assessee transferred a capital asset which was received by her by way of gift on 1.2.2003. The previous owner had acquired the capital asset on 29.1.1993. In computing capital gains, the assessee claimed that the indexed cost of acquisition had to be worked out by taking the date of acquisition by the previous owner.

The AO rejected the claim though the CIT (A) accepted it. On appeal by the Revenue, the issue was referred to the Special Bench. HELD by the Special Bench:

(i) Explanation (iii) to s. 48 defines the term “indexed cost of acquisition” to mean the amount which bears to the cost of acquisition the same proportion as the …. Cost Inflation Index for the first year in which the asset was held by the assessee …” A literal reading of the provision suggests that one has to go by the year in which the asset was held by the assessee. However, this would be inconsistent with the scheme of the Act as reflected in the definition of “short-term capital asset” in Expl. 1(b) to s. 2 (42A) which provides that the period for which the asset was held by the previous owner also has to be taken into account. It is not logical that the cost of acquisition and the period of holding is determined with reference to the previous owner and the indexation factor is determined with reference to the date of acquisition by the assessee. Such an interpretation will lead to absurdity and unjust results and defeat the purpose of the concept of ‘indexed cost of acquisition’. In accordance with the principles of purposive interpretation of statutes, Expl. (iii) to s. 48 has to be read to mean that the indexed cost of acquisition has to be computed by taking into account the period for which the asset was held by the previous owner.

Note:-

Kishore Kanugo 102 ITD 437 (Mum) is reversed while Meena Devgan 117 TTJ 121 (Kol) and Pushpa Sofat 81 ITD 1 (Chd) (SMC) are approved.

More Under Income Tax

Posted Under

Category : Income Tax (25548)
Type : Judiciary (10299)
Tags : Capital Gain (340) indexation (32) inflation index (23) ITAT Judgments (4637)

0 responses to “Indexed cost of gifted assets has to be determined with reference to previous owner”

  1. ANAND P KHURANIA says:

    Pls. send me complete case details of the apeal no 7315/mum/2007 and such new cases
    of capital gain- index cost- index year sec 48

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