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. Smt.kaveri Thimmaiah

IN THR HIGH COURT OF KARNATAKA AT BANGALORE| DATED THIS THE 6 DAY OF JUNE 2JO14 PRESENT THR HON’BLK MR JUSTICK N. KUMAR AND THR HON’BLK MR JUSTICE B. MANOHAR ITA NO. 3860/2013 C/W ITA NOS.387/2013 & 3838/20 IN ITA NO.386/2013; BRTWEEBN THR COMMISSIONBR OF INCOME TAXNO.959/1,VISHWESHWARANAGAR,MYSORE — 570 OOS |_. APPELLANT| (BY SRI E.SANMATHI, ADVOCATE)| AND: SMT. KAVERI THIMMAITAH,PAN NO. AVVPK56026LMATTADEAD ESTATE,ULIGULI NARGANE VILLAGE, |SUNTIKOPPA —- 571 237_ RBSPONDENT (BY SRI A.SHANKAR, ADV. & SRI A.LAVA, ADV.) KKK THIS APPEAL IS FILED UNDER SECTION 260-A OF|THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE.APPBRAL AND SBT ASIDE THR ORDERS PASSEKD BY THINCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA.NO.724/BANG/2012 DATED 15.03.2013 AND ETC. IN ITA NO 3387/2013 BETWEEN: THR COMMISSIONBR OF INCOME TAXNO.9595/1, VISHWESHWARANAGARMYSORE — 570 OO8|_. APPELLANT (BY SRI E.SANMATHI, ADVOCATE)| AND: SMT. ASHA MACHIAH,PAN NO. AJYPA 8026D|MATTADEAD ESTATE, ULIGULI NARGANE VILLAGE, SUNTIKOPPA —- 571 237RESPONDENT(BY SRI A.SHANKAR, ADV. & SRI A.LAVA, ADV.) RRR THIS APPEAL IS FILED UNDER SECTION 260-A OF|THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE.APPBRAL AND SBT ASIDE THR ORDERS PASSEKD BY THINCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA.NO.725/BANG/2012 DATED 15.03.2013 AND ETC. IN ITA NO. 388/2013:/ BEREITWE THR COMMISSIONBR OF INCOME TAXNO.9595/1, VISHWESHWARANAGARMYSORE — 570 OO8|APPELLANT(BY SRI E.SANMATHI, ADVOCATE) AND: SMT. NINA DEVAIAH,PAN NO. MATTADEAD ESTATE, ULIGULI NARGANE VILLAGE,SUNTIKOPPA —- 571 237 — RBSPONDENT (BY SRI A.SHANKAR, ADV. & SRI A.LAVA, ADV.) KKK THIS APPEAL IS FILED UNDER SECTION 260-A OF)THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE.APPRAL AND SET ASIDB THR ORDERS PASSED BY THRINCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA.NO.726/BANG/2012 DATED 15.03.2013 AND ETC. THRSK APPEALS COMING ON FOR ADMISSION THIS.DAY,KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT These three appeals are preferred by the revenue is—against the common order passed by the tribunal in respect|of three assesses setting-aside the order passed by the|Commissioner ot Income Tax under Section 263 oft theIncome Tax Act, 1961 (For short hereinafter referred to as|‘The Act’) and grant relief to the assesses. 2. The assesses in these three appeals are individuals. |They are the legal heirs of One Mr C B Devaiah. Mr C B|Devaiah owned the property which had been acquired by him prior to 1.4.1981. Mr CB Devaiah died on 23.4.2000.His legal heirs sold the property owned by him during theprevious year relevant to 2005-06 1.e., on 18.10.2004. The three assesses as legal heirs were entitled to 1/5 share eachover the property owned by Mr C B Devaiah. They declaredcapital gain on sale of the property in their returns of incomefiled for the assessment year 2005-06. In the computation ofcapital gains, they adopted the fair market value(FMV) of theproperty 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 of acquisition also|claimed indexation on FMV as on 1.4.1981. The assessingauthority while completing the assessment of the 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 from 1.4.1981.The Commissioner of Income Tax exercising his power|under Section 263 of the Act was of the view that theassessment officer’s order in the case of the assesses|allowing the benefit of indexation from 1.4.1981 was|erroneous and prejudicial to the interest of the revenue|because as per explanation (111) to Sec.48 of the Act, “indexedcost of acquisition” 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 assetwas held by the assessees or for the year beginning on the|1[23]day of April 1981, whichever is later. According to the|appellate 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 preferredappeals to the tribunal. The tribunal after hearing both theparties and relying on a judgment of the Bombay High Courtin 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, the| Commissioner 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 theimpugned order contends as is clear from explanation (111) to section 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 HighCourt 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 on1.4.1981 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 theprevious owner of the property acquired it, as increased bythe 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|interterence is made out. 7. The appeals are admitted to consider the following|substantial question of law: “Whether on the facts and in thecircumstances of the case, the tribunal is right|in law in concluding that while computing the|capital gains arising on transfer of a capital|ASSETacquiredby|theaSSecsSSethroughsuccession, 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|becametheOWrIeyOottheASSETthroughS1IICCeESSI0N 7. The appeals are admitted to consider the following|substantial question of law: “Whether on the facts and in thecircumstances of the case, the tribunal is right|in law in concluding that while computing the|capital gains arising on transfer of a capital|ASSETacquiredby|theaSSecsSSethroughsuccession, 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|becametheOWrIeyOottheASSETthroughS1IICCeESSI0N 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 andexclusively in connection with such transfer and the cost ofacquisition of the asset and the cost of any improvementthereon. The 2[=9]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[23]day ofApril 1981, whichever is later. Section 49 # £=deals with the cost with reference certain 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 previousowner of the property acquired it, as increased by the cost ofany improvement of the assets incurred or borne by the|previous owner or the assesses, as the case may be. Therefore, when an asset is acquired by way of inheritance,the cost of acquisition of the asset should be calculated on the 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 held|by the assessee”, a harmonious reading of Sections 48 and|49 makes it clear for the purpose of ‘Indexed Cost of|Acquisition’, 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, thenthe 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 andthe tax payable. That is precisely what has been held by theBombay High Court in the aforesaid Judgment which in our|view 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/- |JUDGEsd/-JUDGE