Aggrieved By The Said Order, The Assesses Preferredappeals To The Tribunal. The Tribunal After Hearing Both Theparties And Relying On A Judgment Of The Bombay H v. Manjula J)Shah Reported In (2012) 68 Dtr 269 (Bombay) Held The

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATBD THIS THER DAY OF JUNE 2014 PRESENT THR HON’BLEK MR JUSTICE N. KUMAR AND THR HON’ BLE MR JUSTICE B. MANOHAR ITA Nos.633/2013 c/w 634/2013 ITA 6333/2013 Between: COMMISSIONER OF INCOME TAX|NO.595/1, SHILPASHREEVIDYARANYA COMPLEX.VISHVBSWARA NAGARMYSORE — 570008._APPBRLLANT (BY SRI E I SANMATHI, ADVOCATE)| AND: SMT ASHA MACHAITAHMATTADEAD ESTATEULUGULI-NARGANE VILLAKSUNTIKOPPA-571237SOMVARPET TALUK._ RBSPONDENT (BY SRI A SHANKAR, & M LAVA, ADVOCATES) THIS APPEAL IS FILED UNDER SECTION 260-A OF|THE INCOME TAX ACT, 1961 PRAYING TO SET-ASIDE THEAPPELLATE ORDER DATED 19.06.2013 PASSED BY THEINCOME|TAX|APPRLLATETRIBUNAL,Cc’BENCH,BANGALOREIN_APPKBALPROCBBDINGSNO. ITANO.1343/BANG/2012 FOR ASSESSMENT YEAR 2008-09AND BTC. ITA NO.634/2013| BRTWEHEBE 1. COMMISSIONBR OF INCOME TAXNO.99/1, SHILPASHREEVIDYARANYA COMPLEX.VISHVEBESWARA NAGAMYSORE — 570 OOS.|APPRLLANT| (BY SRI E I SANMATHI, ADVOCATE) ANT): SMT KAVERI THIMMAAIAHMATIADEAD ESTATE >ULUGULI NARGANE VILLAGE.SUNTIKOPPA —- 571237SOMVARPET TALUK~ RESPONDENT (BY SRI A SHANKAR, & M LAVA, ADVOCATES) THIS APPEAL IS FILED UNDER SECTION 260-A OF|THE INCOME TAX ACT, 1961 PRAYING TO SET-ASIDE THEAPPELLATE ORDER DATED 19.06.2013 PASSED BY THEINCOMETAX|APPEKLLA TTRIBUNAL,‘Cc’BENCH,BANGALORE|IN_APPKBALPROCHDINGSNO. ITANO.1344/BANG/2012 FOR ASSESSMENT YEAR 2008-09AND EITC. THRESK APPEALS COMING ON FOR ADMISSION THISDAY, KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT These two appeals are preferred against the common|order passed in respect of two assessees by the tribunal|setting-aside the order passed by the Commissioner of|Income Tax under Section 263 of the Income Tax Act, 1961(For short hereinafter referred to as ‘The Act). 2. The assesses in these two appeals are individuals. |They are the legal heirs of one Mr C B Devaiah. Mr C B|Devaiah owned a property which had been acquired by him|prior to 1.4.1981. Mr C B Devaiah died on 23.4.2000. His|legal heirs sold the property owned by him during the|previous year relevant to 2005-06 i..e, on 18.10.2004. Thesetwo assesses as legal heirs were entitled to 1/5[%6]share eachover the property owned by Mr C B Devaiah. They declared|capital gains on the sale of the property in their returns ofincome filed for Assessment Year 2005-06. In the!computation of capital gains, they adopted the fair market|value(FMV) of the property as on 1.4.1981 as the cost of|acquisition of the property. The revenue did not dispute|this valuation. The assesses while computing their cost ofacquisition also claimed indexation on FMV as on 1.4.1981.The assessing authority while completing the assessment ofthe assesses, accepted the claim of the assessees in the|order of assessment dated 24.12.2010 passed under Section|143(3) of the Act allowing the benefit of indexation from1.4.1981. The Commissioner of Income Tax (Appeals)|exercising his power under Section 263 of the Act was of theview that the assessment officer’s order in the case of the| assesses allowing the benefit of indexation from 1.4.1981was erroneous and prejudicial to the interest of the revenuebecause as per explanation (111) to Sec.48 of the Act, “indexedcost of acquisition” means an amount which bears to thecost of acquisition the same proportion as 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 assetwas held by the assessees or for the year beginning on the|1 day of April 1981, whichever is later. According to theappellate authority, the assets was held by the assesses only|from 23.4.2000 when Mr C B Devaiah died. Therefore, the|benefit of indexation has to be allowed only from 23.4.2000|and not from 1.4.1981 as claimed by the assesses.|Accordingly, the order passed by the Assessing authority wasrevised and assessing authority was directed to allow|indexation benefit from financial year 2000-01 only. 3. Aggrieved by the said order, the assesses preferred|appeals to the tribunal. The tribunal after hearing both theparties and relying on a judgment of the Bombay High Court in the case of Commissioner of Income Tax vs Manjula J)Shah reported in (2012) 68 DTR 269 (Bombay) held the| Commissioner was not justified in not following the decision|of the Hon’ble Bombay High Court, the ratio of the decision|of the Bombay High Court rendered in the context of|acquisition of property by way of gift will apply with greater|force when property devolves by succession. The view takenby the assessing authority was correct and therefore, theCommissioner of Income Tax was not justified in exercising|his jurisdiction under Section 263 of the Act and in|interfering with the order passed by the Assessing Authority.Therefore, the appeal was allowed. The order of the|Appellate Authority was set-aside. The order of assessment|was restored. 4. Aggrieved by the said order, the revenue is in'§appeal. Oo. Learned counsel for the revenue assailing the}impugned order contends, as is clear from explanation (111) tosection 48, the indexed cost of acquisition is to be allowed|for the first year in which the asset was held by the assessesor in the year beginning on the first day of April, 1981,|whichever is later. Therefore, the tribunal was not justified| in interfering with the order passed by the Commissioner ofIncome Tax. In fact, the revenue has preferred a Special|Leave Petition against the judgment of the Bombay High|Court and it is pending consideration before the Apex Court|and therefore, he submits the order requires to be interferedwith. 6. Per contra, learned counsel for the assesses|submitted if the cost of acquisition of the property as on|1.4.1981 is taken into consideration, then the indexed cost)of acquisition has to be calculated from that date, not from|the day the assesses held the property by way of succession.He submits in view of Section 49, the cost of acquisition ofthe asset shall 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 borneby the previous owner or the assesses as the case may be, ifthe acquisition is by way of succession, inheritance or|devolution. If, cost of acquisition is to be computed as on|the day the previous owner held the property on 1.4.1981,|though the assesses acquired the said property by way ofsuccession, indexed cost of acquisition is to be allowed from| the day the property was owned by previous owner and not|when the assesses held the property after his death and thatis the ratio decided by the Bombay High Court in the|aforesaid Judgment and therefore, he submits no case for|interference is made out.| 7. The appeals are admitted to consider the following|substantial question of law: “Whether on the tacts and in the’!circumstances of the case, the tribunal is right|in law in concluding that while computing the|capital gains arising on transfer of a capital|asset.acquiredby|theaSSe@Sseethroughsuccession, the indexed cost of acquisition has|to be computed with reference to the year in|which the previous owner first held the asset|and not the year in which the assessee actually|becamethe OWTD)§OT the asset.throughSUCCeSsion ?” 8. Section 45 of the Act provides that any profits or!gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income tax underthe head “Capital gains”. Capital Gains is of two types.short-term capital gains and long term capital gains.|Depending upon the nature of capital gains the liability ofthe tax is determined. The mode and manner of computing|the capital gains is provided under Section 48 of the Act. 8. Section 45 of the Act provides that any profits or!gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income tax underthe head “Capital gains”. Capital Gains is of two types.short-term capital gains and long term capital gains.|Depending upon the nature of capital gains the liability ofthe tax is determined. The mode and manner of computing|the capital gains is provided under Section 48 of the Act. The income chargeable under the head capital gain shall be|computed by deducting from the full value of the|consideration received or accruing as a result of the transfer|of the capital asset, the expenditure incurred wholly and|exclusively in connection with such transfer and the cost ofacquisition of the asset and the cost of any improvement|thereon. The 2[&<]proviso to Section 48 provides where long|term capital gain arises from the transfer of a long term|capital asset, the cost of acquisition of the asset has to be|read as “indexed cost of acquisition”. Indexed cost of |acquisition has been defined in the explanation to the said|section, it means an amount which bears to the cost of|acquisition the same proportion as 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 heldby the assesses or for the year beginning on the 1[st]day ofApril 1981, whichever is later. Section 49 #£=deals with the cost with reference tcertain modes of acquisition. One such mode is if theassesses acquires a capital asset by way of succession,|inheritance or devolution, then the cost of acquisition of theasset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost otfany improvement of the assets incurred or borne by the|previous owner or the assesses, as the case may be.Theretore, when an asset is acquired by way of inheritance,the cost of acquisition of the asset should be calculated onthe basis of the cost of acquisition by the previous owner andthe said cost of acquisition of the previous owner has to be|calculated on the basis of indexed cost of acquisition as|provided in explanation (3) to Section 48. 9. Though in the definition of ‘indexed cost of|acquisition’, the word used are, “in which the asset was heldby the assessee”, a harmonious reading of Sections 48 and49 makes it clear for the purpose of ‘Indexed Cost ofAcquisition’, it has to be understood as the first year in|which the previous owner held the said property. Otherwise,if the date of inheritance is taken into consideration, then|the cost of acquisition of the asset on that date)corresponding to the market value is to be taken into|consideration. Otherwise, take the cost of acquisition on theday the previous owner acquired it and apply the “Indexed|Cost of Acquisition” and then calculate the capital gains and the tax payable. That is precisely what has been held by theBombay High Court in the aforesaid Judgment which in ourview is the correct legal decision. 10. In that view of the matter, the tribunal was.justified in following the Judgment of the Bombay High|Court and in setting-aside the order passed by the|Commissioner of Income Tax. Therefore, the substantial|question of law framed is answered in favour of the assessesand against the revenue. Appeals are dismissed. Nocosts. brn. Sd/- |JUDGE|sd/-JUDGE|