AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 698
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....m Mrs. P.L. Mirchandani) Cost with Mrs. P.L. Mirchandani as On 19.10.2003 30000*100 582 (300000 x 582/463) 30,00,000.00 37,71,058.32 37,71,058.32 Total indexed cost 87,43,427.55 C 4978 shares of IWAI Electronics Ltd. Gifted by Mr. Malani dt. 15.6.05 to Ms. Soni Mirchandani cost as per Balance Sheet of Mr. Bhagwan Malani as on 31.3.1999 Indexed cost in 2008-09 4978*100 582 (497800x582/251) 4,97,800.00 8,25,411.97 8,25,411.97 95,68,839.51 Gross indexed cost in 2008-09 93,88,81,656.00 D Sale consideration of GUVISO & IWAI Shares Capital gain 92,93,12,816.49 LOSS ON CAPITAL A 1661 shares of ADINO Electronics P. Ltd. 1500 shares Gifted by Mr. Malani dt. 15.6.05 To Ms. Soni Mirchandani 161 shares gifted by Mr. Malani dt. 03.03.05 To Ms. Soni Mirchandani Mr. Bhagwan Malani 17.3.1999 Cost as per Balance sheet of Mr. Bhagwan Malani as on 31.3.1999 1661*100 1,66,100.00 Indexed cost in 2008-09 582 (166100 x 582/351) 2,75,413.68 1,66,100.00 ....
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....ious owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (ii) of section 49(1) of the I.T. Act. Accordingly, he concluded that benefit of indexation allowable in accordance with second proviso to section 48 of the I.T. Act will be subject to Explanation (iii) of section 48. He, therefore, pointed out that in order to work out the correct indexed cost of the acquisition of shares sold in accordance with Explanation (iii) to section 48 of the I.T. Act, 1961, it would be relevant to find out the cost of acquisition of shares by the previous owner and also assessee. After considering the assessee's computation, the AO issued show cause notice to explain as to why the cost inflation index for the year in which the shares were first held by assessee (that is the year of acquisition by assessee) may not be applied and indexed cost of acquisition be reworked out accordingly. The assessee's explanation has been reproduced in para 6A of assessment order in which primarily assessee relied on the decision of Spl. Bench of ITAT in the case of Deputy CIT vs. Manjullah J. Shah in ITA No. 735/Mum./2000 dated 16/10/2009. In this case, it was hel....
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....in Coma and on 03.10.2011 breathed his last." 3. The AO disallowed the assessee's claim, inter-alia, observing in para 7 & 7(a) as under: 7. "I have considered the assessee's submission and also the facts of the case and in light of legal provisions and various judicial pronouncement on the issue. The section 2(42AA)(b) of the I.T. Act, 1961 according to which in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in [sub-section(1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section. The section 2(42A)(b) only says that while considering the capital gain on transfer of a capital asset which becomes the property of the assessee in the circumstances mentioned in section 49(1), the period for which the asset was held by the previous owner should also be included. Meaning thereby that the determination of long term or short term capital gain depends upon the entire period of holding of asset by assessee and also by the previous owner. This is infact a definition whereby the capital asset should be considered as short term or long term capital asset. The....
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....ee who became the owner of capital asset through a mode mentioned in section 49(1) of the I.T. Act, 1961 by including the period of holding of asset by previous owner. According to the 2(42A)(b) and also section 55(2)(b), the only benefit extended to the beneficiary assessee is treatment of capital gain after inclusion of the period for which the asset was held by the previous owner along with assessee. Thus, allowing the beneficiary assessee for taxation of the capital gain at a lower rate even though the assessee may have become owner of the property in the same year in which the property was sold, is the only intent of statute. There is no scope of providing indexation for the entire period for which the asset was held by the previous owner. Respectfully disagreeing with ld. Counsel, I reject the claim of assessee for claiming indexation for the F.Y. prior to the date on which the property was first held by the assessee. As discussed aforesaid and also mentioned by assessee himself, cost of acquisition of the capital asset shall be deemed to be the cost for which the previous owner of the property acquired. It means that the previous owner of the capital asset who acquired it by....
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....lant from the date of acquisition by the previous owner and not from the date of inheritance. This is because the Act has allowed the assessee to start the journey from the date on which the ancestor of the assessee acquired the property in cases where the cost of the property is required to be ascertained or where the nature of the asset is to be ascertained. However, when it comes to the ascertaining the amount of capital gains, it allows the assessee to start journey only from the date on which the assessee acquires the asset. This is in inequitable and could not have been the intention of law. This view is expressed in the decision pronounced by the Chandigarh bench of the ITAT in the case of Mrs. Pushpa Safat vs. ITO, 81 ITD (Chd.) (SMC). This decision is a direct decision which unequivocally states that the indexation has to start from the year in which the property was acquired by the previous owner in case of inheritance of property and not from the year of inheritance. 7.4 In the case of DCIT vs. Manjula J. Shah a Special Bench was constituted by the Hon'ble President for considering and deciding the following question as a result of the divergent views expressed by the d....
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....d with reference to the year in which previous owner first held the asset. 7.8 Further, the Hon'ble Delhi High Court in the case of Arun Shungloo Trust (2012) 18 Taxman.com 261 (Del) has also held that benefit of indexation cost of improvement by previous owners in cases covered by section 49 would be allowed. 8. In view of the facts and circumstances of the instant case and in the light of the various judicial pronouncements, I hold that while computing the capital gains arising on sale of shares acquired by the appellant by way of gift, the indexed cost of acquisition is to be computed with reference to the year in which the previous owners first held the asset and not the year in which the appellant became the owner of the asset. Accordingly, the AO is directed to compute the capital gains in the case of the appellant by applying the indexed cost of acquisition in which the previous owners first held the asset in question. This ground of appeal is allowed." 6. Ld. DR referred to page 6 of assessment order and pointed out that main issue in the present appeal is in regard to meaning of previous owner. He pointed out that Hon'ble Delhi High Court in the case of Arun Shungloo Tr....
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....arate their businesses. Accordingly, a family settlement agreement/memorandum was entered into on 31st May, 2008. As per this settlement, in consideration of Rs. 93,88,81,656/-, the 59,988 equity shares in GUVISO Holdings Pvt. Ltd. and 4,978 shares in IWAI Electronics Pvt. Ltd. held by the assesse Smt. Soni Sonu Mirchandani were to be transferred to Sh. Gulu L. Mirchandani. The AO further examined the mode of acquisition of the shares by assessee. He noted that out of 59,988 shares of GUVISO sold by the assessee, 30,000 shares were received by her from her two sons namely Sh. Varun & Sh. Karan in March, 2008 (i.e. 15,000 from each) as gift. The remaining 59,908 shares of GUVISO were received by the assessee from her father Sh. Bhagwan Malani in May, 2005 again as gift. The 4,978 shares of IWAI were also received as gift from her father in May, 2005. Out of the 16,061 shares of Addino Electronics, 1500 shares were received as gift in May, 2005 and remaining 161 shares were further received as gift in May, 2006. The 1000 shares of ADONIS Electronics were received on 13/03/2006 as gift by assessee from her father Sh. Bhagwan Malani. The assessee had submitted following chart in this r....
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.... in which the previous owner first held the assets. The assessee, inter-alia, pointed out as under: "Given in Annex-18 to the letter dated 23.09.2011. The cost adopted is the cost of shares in the hand of previous owners of shares from whom the assessee received shares as gift. 30000 shares of GUVISO were received by the assessee as gift from her sons Mr. Varun S. Mirchandani & Mr. Karan S. Mirchandani in March, 2008 who in turn inherited 14990 shares each from their grand mother late Mrs. P.L. Mirchandani as per her will on 19.10.2003. Copy of the will as well as statement of affairs of that date has been submitted with the letter dated 27.09.2011 (point No. 7). The remaining shares of GUVISO Holdings and other three companies were received as gift from her father Lt. Sh. Bhagwan Malani. Copies of gift deeds have already been filed with the letter dated 27.09.2011. A copy of the will dated 15.10.1999 has also been filed with letter dated 27.09.2011 in support that he held the shares. It may be added that he, who was 81 met with a very serious accident at Bangalore and since then he was lying in Coma and on 03.10.2011 breathed his last." 10. The AO, however, did not accept the as....
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....hi High Court Arun Shungloo Trust vs. CIT (2012) 18 Taxman, ITA No. 116/2011 dated 13/02/2012. 12. Thus, the entire controversy revolves around the meaning of previous owner. 13. Section 49 deals with cost with reference to certain modes of acquisition while computing capital gains chargeable u/s 45. As per this section if assessee acquired any capital asset, inter-alia, by way of gift or will then the cost of acquisition of the asset is to be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Explanation to this section defines the expression "previous owner of the property" as under: "[Explanation - In this [sub-section] the expression "previous owner of the property" in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) [or clause (iv)] of this [sub-section].]" 14. A bare perusal of this explanation makes it abundantly clear that if the mode of acquisition of a capita....
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....s on the basis of 50% of the property having been inherited by the assesseerespondent from his father on 21/08/1988 and the other 50% thereof having been inherited by him from his mother on 21/02/2000 and, accordingly, applied the cost inflation index. 15.3 Ld. CIT(A) allowed the assessee-respondent's appeal holding that the period for determining the long term capital gain included the period for which the original owner held the assets that devolved upon the legal heir. 15.4 The revenue challenged the order of CIT(A) before the ITAT. The ITAT held that the period for holding 50% of the property inherited by the assessee-respondent from his father would start from 01/04/1981, whereas in respect of 50% of the property inherited by the assesseerespondent from his mother, the period for holding would start from 21/08/1988, as she became the owner of her 50% share of property only from that date. 15.5 Thus, the main grievance of assessee-respondent was only with respect to the finding of the Tribunal that the period of holding in respect of 50% of the property inherited by him from his mother would start from 21/08/1988 and not from 01/04/1981. The Hon'ble Bombay High Court after c....