TaxTMI 
TaxTMI 
2026 (8) TMI 1475
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....gly applying the provisions of section 49(1)(iii)(a) of the Act, in holding that the gains arising out of sale of properties is Long Term Capital Gains without considering the undisputed fact relating to the date of acquisition and legal ownership of the properties on dissolution of trust?" 3. The brief facts of the case are that the assessee, an individual, sold two immovable properties, namely Plot No. 631/2 and Plot No. 631/3, during the year under consideration. The said properties were originally held by Late Shri Navnitlal Bhagubhai, who, under his Will, bequeathed the properties to a private family irrevocable discretionary trust. Upon dissolution of the trust, the properties were distributed to the assessee, being one of the beneficiaries, vide Deed of Dissolution dated 15.09.2014. The assessee thereafter sold Plot No. 631/2 for Rs. 8,00,00,000/- and Plot No. 631/3 for Rs. 5,94,87,180/-. 4. The assessee treated the resultant gains as Long Term Capital Gains. However, the Assessing Officer considered 15.09.2014, being the date of the registered dissolution deed, as the date of acquisition by the assessee and, since the properties were sold on 01.03.2016, treated the ga....
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....o 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.-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 (iii) or clause (iv) of this subsection." [Emphasis supplied] 4.2.8 The appellant's case falls under section 49(1)(iii)(a) of the Act i.e. the capital asset becoming the property of the appellant under succession, inheritance or devolution. The settlor of the trust by way of will bequeathed the property to irrevocable private family trust and upon its dissolution, the property was bequeathed to the beneficiary i.e. the appellant which comes under the clause (iii)(a) i.e. by succession, inheritance or devolution. Thus, as per the provisions of section 49(1)(iii)(a), the cost of acquisition is to be taken at the cost for which the previous owner who first acquired i....
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....holding period of the previous owner. It is seen that, the AO has himself applied the provisions of section 49(1) and taken the cost of acquisition as incurred by the previous owner defined u/s 49(1) of the Act. Having allowed the cost of acquisition of the previous owner, there was no way that the AO could have denied to include the holding period in the hands of the previous owner clearly mandated by the provisions of explanation 1 part (b) of Sec.2(42A) of the Income tax Act. The co-joint reading of provisions of section 49(1) read with Explanation thereto alongwith sec.2(42A) explanation 1 part (b) thereto unambiguously leads to the conclusion that once the capital asset is acquired under any of the modes specified in sec.49(1) of the Act, not only the cost of the previous owner but also the holding period of previous owner applies as per Explanation to sec.2(42A) of the Act. As stated earlier, it is undisputed that the previous owners i.e. the settlors acquired the properties prior to 01.04.1981 and thus, the cost of acquisition i.e. fair market value as on 01.04.1981 as well as the period of holding has to be taken from the previous owners. Hence, the third point i.e. whether....
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....ovision contained in the Explanation 1(i)(b) to section 2(42A) of the Act, the assessee is deemed to have held the asset from 29-1-1993 to 30-6-2003 (by including the period for which the said asset was held by the previous owner) and, accordingly, held liable for long term capital gains tax. 13. It is not disputed by the revenue that the assessee must be deemed to have held the capital asset from 29-1- 1993 (though actually held from 1- 2-2003) by applying the Explanation 1(i )(b) to section 2(42A) and, hence, liable for long term capital gains tax. However, the revenue disputes the applicability of the deemed date of holding the asset from 29-1-1993 while determining the indexed cost of acquisition under clause (iii) of the Explanation to section 48. 16. It is the contention of the revenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to section 48 has to be determined with reference to the cost inflation index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect from 1-2-2003, the first year of holding the asset would be financial year 2002-03 and, ....
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.... "13. Therefore, the cost of acquisition of the said property in the hands of seller is deemed to be the cost for which the said property was acquired by late Mrs. Dolly Jehangir Gazdar and the period of holding of late Mrs. Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee are also to be included in the period of holding of seller for ascertaining the period for which the property was held by the seller. Based on the Scheme of the Act, as provided in section 49(1)(ii), clauses (29A) and (42A) of section 2 and section 55(2)(b)(ii) of the Act, indexation of the cost of acquisition under the second proviso to section 48 should be available from the financial year 1981-1982. Therefore, on this ground alone, we will have to grant prayer clause (a) as quoted earlier." Deputy Commissioner of Income-tax, Circle-I, Bathinda v. Sushil Kumar [2015] 57 taxmann.com 19 (Punjab & Haryana) - In this case, the AO had himself accepted the claim of the assessee under section 49(1)(i) taking the cost of the previous owner as on 1-4-1981. However, the Assessing Officer had applied the Cost of Inflation Index for the year 1998-99 instead of 1981-82 and the assessmen....
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.... 4.2.12 As per the above judgments of Hon'ble High Courts, also followed by numerous judgments of Hon'ble ITAT, the matter is no longer res integra that in view of Explanation 1(i)(b) to section 2(42A) which provides that in determining the period of holding by an appellant under succession, inheritance or devolution, the period for which the said asset was held by the previous owner shall be included and the appellant shall be deemed to have held the asset as a long term capital asset and, accordingly, liable for long term capital gains tax. Thus, by applying the deeming provision contained in the Explanation 1(i)(b) to section 2(42A) of the Act, the appellant is deemed to have held the asset from the date on which it was held by the 'previous owner'. Hence, indexation on cost of acquisition shall be computed as applicable from the date of holding of the previous owner. Such being the case, the capital gains arising from the sale of the two properties shall be liable to be taxed as long term capital gains tax. Thus, the last point has also to be answered in favour of the appellant when the period of holding in the hands of the previous owner is to be included, the benefit of index....
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....he undisputed factual position is that the properties were originally held by the Testator and thereafter vested in the private family trust pursuant to his Will. Upon dissolution of the trust, the properties devolved upon the assessee as beneficiary. In this regard, it is pertinent to note the relevant provisions of the Act;- A) Provisions of Section 49(1)(iii)(a) read as under :- Cost with reference to certain modes of acquisition. 49. (1) Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) (a) by succession, inheritance or devolution, or (b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or (c) on any distribution of assets on the liquidation of a company, or (d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is referred to in clause (iv) or clause (v) or claus....
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....ad been substituted.] Explanation 1.-(i) In determining the period for which any capital asset is held by the assessee- (a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ; (b) 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 ; (c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ; ....." 9.2 We note that the Assessing Officer himself has adopted the cost of acquisition of the previous owner while computing the capital gains. Therefore, once the previous owner's cost is taken under section 49(1), the period for which the property was held by the previous owner is....
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.... his will. Upon dissolution of the trust, the property devolved upon the beneficiaries including the assessee. Therefore, the provisions of section 49(1)(iii) of the Act are clearly attracted and consequently the period of holding of the previous owner as well as the trust is required to be included for determining the nature of the capital asset. 18. This legal position has been affirmed by the Hon'ble Supreme Court in CIT v. Manjula J. Shah (2012) 204 Taxman 42 (SC) wherein it was held that where the property is acquired through inheritance or similar modes specified under section 49(1), the period of holding of the previous owner must be taken into consideration for determining whether the asset is long-term or short-term. Similar view has been taken in CIT v. Arun Shungloo Trust (2012) 205 Taxman 456 (Delhi HC). The Hon'ble Bombay High Court in the case of CIT v. Manjula J. Shah (2011) 16 taxmann.com 42 / 355 ITR 474 (Bom.) had occasion to consider this precise issue. The Hon'ble High Court held that when the legislature by introducing the deeming fiction under section 49(1) seeks to tax the gains arising on transfer of a capital asset acquired under gift o....