TaxTMI 
TaxTMI 
2013 (7) TMI 413
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....rent legal concepts and are mutually exclusive? (B) Whether the Appellate Tribunal erred in law in not applying the provisions of section 48, Explanation(iii) which clearly states that inflation index would apply for the first year when the asset was first held by the assessee?" 2. Question pertains to computing of capital gain of the respondent assessee. Brief facts necessary to understand the issue are as under:- 2.1) For the assessment year 2005-2006, assessee had filed his return of income on 30.12.2006 declaring a total income of Rs.84,34,643/- in which he had shown long term capital gain of Rs.59,04,692/-. This capital gain had accrued to the assessee upon sale of land with a dwelling house situated in the city of Baroda. ....
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.... Revenue thereupon approached the Tribunal. Tribunal by impugned judgement rejected the Revenue's appeal making following observations : "5. We have considered the submissions of the learned DR and perused the orders of the AO and the CIT(A). We find that the property in question was acquired by the assessee by way of gift in the year 1995 from his brother. Accordingly, the mode of acquisition is as provided under section 49(i)(ii) of the I.T.Act. The provision of section 49 of the IT Act lays down that where the capital asset become the property of the assessee in a gift or will, the cost of acquisition of the asset shall be deemed to be a cost for which the previous owner of the property acquired it, as increased by the cost of any imp....
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....h the asset was held by the assessee must be taken to be the year 1995, the date on which the property was acquired by the assessee through gift. 4. We are however, of the opinion that CIT(Appeals) as well as Tribunal committed no error. We may recall that in the present case, since the assessee had acquired the property through gift, in normal understanding of law, there would be no cost of acquisition attached to such property. Section 49 of the Act, however, makes a deeming provision for computing the cost of acquisition in such cases. Relevant portion of section 49 reads as under : "49. Cost with reference to certain modes of acquisition: (1) Where the capital asset became the property of the assesseexxx (ii) under a gift or wi....
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.... (ii) the cost of acquisition of the asset and the cost of any improvement thereto. xxx Explanation - For the purpose of this section :- xxx (iii) "indexed cost of acquisition" means 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 assessee or for the year beginning on the 1st day of April, 1981, whichever is later." 7. Under section 48 of the Act, thus capital gain is 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 con....
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....nnot be accepted. We say so for the following reasons. Firstly, by virtue of a deeming fiction provided in sub-section(1) of section 49, cost of acquisition in hands of the assessee would be the cost for which the previous owner of the property acquired it. It is for this purpose that we need to fall back on computation provision of section 48. When we do so, we work out the cost of acquisition of the asset in the 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 fiction contained in sub-section(1) of section 49. To our opinion such deeming fiction must be allowed to have its full play. As is often stated,....