The Commissioner Of Income Tax v. Shri Satish Kumar Arora

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.633 of 2009Date of decision: 20.9.2010 The Commissioner of Income Tax. -----Appellant. Vs. Shri Satish Kumar Arora -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Ms. Urvashi Dhugga, Standing Counselfor the appellant. --- ADARSH KUMAR GOEL, J. This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order dated 10.10.2008 of the Income Tax AppellateTribunal, Delhi in I.T.A. No.3580/Del)/2007 for the assessmentyear 2004-05 proposing to raise the following substantial questionof law:- “Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding thatthe fair market value of the property was to beascertained on 01.04.1981 and then the index costhas to be found out in the year of sale by theassessee disregarding the explanation (iii) to section48 of the Income Tax Act, 1961 which providesthat indexed cost of acquisition will be adopted from the year in which the asset was first held by theassessee and not by the previous owner?” 2. During the assessment, the Assessing Officer madeaddition to the declared income of the assessee on account ofsale of property which the assessee had inherited in the year1992-93. The addition was by indexing the cost as on the date ofinheritance. The assessee objected to the addition on the groundthat it is not the date of inheritance on which the cost of theproperty is to be seen but on the date of purchase by the previousowner, as increased by the cost of improvements, in forms ofSection 49(1) read with Section 55(1)(b) of the Act. The CIT(A)affirmed the order of the Assessing Officer but the Tribunalupheld the plea of the assessee. The observations made by theTribunal are as under:- “It was contended that the issue stands coveredby the order of “E” Bench of Kolkata Tribunal in thecase of Smt. Mina Deogun Vs. ITO (2008) 117 TTJ121, in which it was pointed out that the property waspurchased by the father in the year 1958 and,therefore, cost of acquisition of the property forcomputing the capital gains on transferring the samein the financial year 2003-04 was to be computed byapplying cost inflation index of financial year 1981-82and not financial year 1998-99. It may be pointed outthat the finding was that it would be improper to applyonly the cost inflation index with reference to previousowner when the property was actually acquired byprevious to previous owner in the year 1958 and the property passed by inheritance first to the wife of thepurchaser and on her death to the daughter of thepurchaser. In this case, the assessee acquired theproperty from her father by way of inheritance, whohad purchased the property in the year 1965.Therefore, the fair market value of the property has tobe ascertained on 1.4.1981 and then the indexed costhas to be found out in the year of sale by theassessee. In this view of the matter, ground nos.1 to4 are allowed. The AO is directed to examine whetherthe whole of capital gains so computed becomededucible because of investment made in the capitalgains bonds, mentioned in section 54EC of the Act.” 3.We have heard learned counsel for the appellant. 4. Contention raised on behalf of the appellant is that asper Explanation (iii) to Section 48 of the Act, “indexed cost ofacquisition” is the amount which bears to the cost of acquisitionthe same proportion as Cost Inflation Index for the year in whichthe asset is transferred bears to the Cost Inflation Index for thefirst year in which the asset was held by the assessee or April 01,1981, whichever is later. Therefore, date of inheritance could berelevant for the purpose of calculation of cost. 3.We have heard learned counsel for the appellant. 4. Contention raised on behalf of the appellant is that asper Explanation (iii) to Section 48 of the Act, “indexed cost ofacquisition” is the amount which bears to the cost of acquisitionthe same proportion as Cost Inflation Index for the year in whichthe asset is transferred bears to the Cost Inflation Index for thefirst year in which the asset was held by the assessee or April 01,1981, whichever is later. Therefore, date of inheritance could berelevant for the purpose of calculation of cost. 5. The argument raised cannot be accepted. Section 48of the Act deals with computation of capital gains. Section 49(1)of the Act provides for cost with reference to certain modes ofacquisition. It stipulates as under:- 49. (1) Where the capital asset became the propertyof the assessee— (i) on any distribution of assets on the total orpartial partition of a Hindu undividedfamily;partial partition of a Hindu undividedfamily; (ii)under a gift or will; (iii)(a)by succession, inheritance or devolution,oror (b)on any distribution of assets on thedissolution of a firm, body of individuals, orother association of persons, where suchdissolution had taken place at any timebefore the 1st day of April, 1987, or]dissolution of a firm, body of individuals, orother association of persons, where suchdissolution had taken place at any timebefore the 1st day of April, 1987, or] (c)on any distribution of assets on theliquidation of a company, or liquidation of a company, or (d)under a transfer to a revocable or anirrevocable trust, orirrevocable trust, or (e)under any such transfer as is referredto in clause (iv) or clause (v) or clause (vi)or clause (via) or clause (viaa) or clause(vica) or clause (vicb) of section 47;to in clause (iv) or clause (v) or clause (vi)or clause (via) or clause (viaa) or clause(vica) or clause (vicb) of section 47; (iv)such assessee being a Hindu undividedfamily, by the mode referred to in sub-section(2) ofsection 64at any time after the 31st dayof December, 1969,family, by the mode referred to in sub-section(2) ofsection 64at any time after the 31st dayof December, 1969, the cost of acquisition of the asset shall be deemed tobe the cost for which the previous owner of theproperty acquired it, as increased by the cost of anyimprovement of the assets incurred or borne by theprevious owner or the assessee, as the case may be. Explanation attached to the aforesaid provision givesthe meaning to the expression ‘previous owner of the property’and it reads thus:- Explanation.—In this sub-section the expression“previous owner of the property” in relation to anycapital asset owned by an assessee means the lastprevious owner of the capital asset who acquired it by a mode of acquisition other than that referred to inclause (i) or clause (ii) or clause (iii) or clause (iv) ofthis sub-section.” 6. In the present case, the assessee had inherited theproperty from his father in the year 1992-93. The father of theassessee had purchased the property in the year 1965 whichwould be the date of acquisition in his hands, as the same wasacquired by the previous owner by means other than thosespecified in clause (i) to (iv) of Section 49(1). After applying theprovisions of Sections 48 and 49 of the Act, it shall be the fairmarket value of the property on 1.4.1981 and thereafter, the‘indexed cost of acquisition’ will be determined. The Tribunal had,thus, rightly taken the date of acquisition by the assessee as1.4.1981 and not of the year 1992-93. There is, thus, no infirmityin the view so taken. 7. No substantial question of law arises. 8. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE September 20, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE JUDGE