ITO, Chandigarh v. Sh. Harcharan Singh Uppal, Chandigarh

ITA 1164/CHANDI/2010 | 2006-2007
Pronouncement Date: 21-11-2011 | Result: Dismissed

Appeal Details

RSA Number 116421514 RSA 2010
Assessee PAN AAGPU1562P
Bench Chandigarh
Appeal Number ITA 1164/CHANDI/2010
Duration Of Justice 1 year(s) 1 month(s) 27 day(s)
Appellant ITO, Chandigarh
Respondent Sh. Harcharan Singh Uppal, Chandigarh
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 21-11-2011
Date Of Final Hearing 16-11-2011
Next Hearing Date 16-11-2011
Assessment Year 2006-2007
Appeal Filed On 24-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA HON'BLE VICE PRESIDENT AND SHRI D.K.SRIVASTAVA ACCOUNTANT MEMBER ITA NO. 1164/CHD/2010 ASSESSMENT YEAR: 2006-07 THE ITO VS SHRI HARCHARAN SINGH UPPAL WARD-4(3) CHANDIGARH CHANDIGARH PAN NO. AAGPU 1562 P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKHILESH GUPTA RESPONDENT BY : SHRI ATUL GANDHI DATE OF HEARING : 16.11.2011 DATE OF PRONOUNCEMENT : 21.11.2011 ORDER PER H.L.KARWA VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A) DATED 16.6.2010 RELATING TO ASSESSMENT YEAR 2006-07. 2. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 13 LACS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S 69 AS THE ASSESSEE COU LD NOT EXPLAIN THE SOURCE OF INVESTMENT FOR PURCHASE O F MUTUAL FUNDS. 3 . BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS RETIRED ARMY OFFICER IN INDIAN ARMY. THE ASSESSEE IS DRAWI NG INCOME FROM PENSION INCOME FROM OTHER SOURCES AND LONG TERM CA PITAL GAIN FROM THE 2 SALE OF HOUSE NO. 1106 SECTOR 8-C CHANDIGARH. TH E ASSESSING OFFICER MADE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT 'THE ACT') AND INCOME CHARGED HAS BEEN ENHANCED TO RS. 84 37 195/- AND RS. 9 30 448/- HAS BEEN CHARGED AS INCOME TAX. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER MADE ADDITION OF RS. 13 00 000/- AS UNEXPLAINED INVESTMENT IN THE MUTUAL FUNDS. DURING THE ASSESSM ENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE SUBSTANTIAL IN VESTMENT IN THE MUTUAL FUNDS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT A DETAILED LIST OF THE MUTUAL FUNDS ALONG WITH DATE OF INVESTM ENT AND THE AMOUNT OF INVESTMENT MADE IN THE MUTUAL FUNDS. IN RESPONSE T O THE SAID QUERY THE ASSESSEE VIDE HIS LETTER DATED 14.12.2007 SUBMITTED DETAILS OF THE INVESTMENT IN THE MUTUAL FUNDS ALONGWITH REQUISITE ACCOUNT STATEMENT FROM THE VARIOUS INVESTMENT ACCOUNTS. HOWEVER THE SOURCE OF MUTUAL FUNDS WAS NOT SUBMITTED BY THE ASSESSEE. THE ASSES SING OFFICER THEREFORE ASKED THE ASSESSEE TO FURNISH THE SOURCE OF INVESTMENT IN THE MUTUAL FUNDS. ON 2 ND DECEMBER 2008 THE ASSESSEE PRODUCED A DETAILED ACCOUNT OF SOURCE OF INVESTMENT IN THE VARIOUS MUTU AL FUNDS. HE WAS HOWEVER UNABLE TO EXPLAIN THE SOURCE OF INVESTMENT IN THE FOLLOWING MUTUAL FUNDS: S.NO. DATE AMOUONT (IN RS.) NATURE OF MUTUAL FUND 1 28.03.2006 8.00 LAKHS RELIANCE MUTUAL FUND 2 30.05.2005 3.00 LAKHS FRANKLIN TEMPLETON MUTUAL FUND 3 23.12.2005 2.00 LAKHS FRANKLIN TEMPLETON MUTUAL FUND 4. THE ASSESSING OFFICER HAS ALSO CONDUCTED INDEPEN DENT ENQUIRIES TO EXAMINE THE SOURCE OF ABOVE MUTUAL FUNDS. IN THIS REGARD THE ASSESSING OFFICER EXAMINED ACCOUNT NO. 01071000054549 WITH HD FC BANK SECTOR 3 8-C CHANDIGARH AND ACCOUNT NO. 62031010000765 WITH BANK OF INDIA SECTOR 35 CHANDIGARH. THE ASSESSING OFFICER VIDE ORDER SHEET ENTRY DATED 8.12.2008 ONCE AGAIN AFFORDED OPPORTUNITY TO ASSESSEE TO FURNISH DETAILS REGARDING SOURCE OF INVESTMENT IN THE AFORE SAID MENTIONED MUTUAL FUNDS ALONGWITH DOCUMENTARY EVIDENCE. IN THIS REG ARD THE COUNSEL OF THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 8.12.2008 SUB MITTED THAT SOURCES OF THE ABOVE FUNDS CANNOT BE EXPLAINED. THE ASSESSEE ALSO SUBMITTED WRITTEN SUBMISSIONS IN THIS REGARD VIDE LETTER DATED 10.12. 2008 WHEREIN IT IS STATED THAT THE FOLLOWING ENTRIES ARE NOT TRACEABLE FROM OUR ACCOUNT. KEEPING IN VIEW THE ASSESSEES ABOVE REPLY THE ASSE SSING OFFICER TOOK THE VIEW THAT THE ASSESSEE COULD NOT GIVE DETAILS OF SO URCES OF INVESTMENT IN MUTUAL FUNDS. HE THEREFORE MADE AN ADDITION OF R S. 13 LACS U/S 69 OF THE INCOME TAX ACT. 5. AGGRIEVED BY HE ORDER OF ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE TOOK THE FOLLOWING LINE OF ARGUMENTS:- I) THAT IMMEDIATELY BEFORE THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD SUFFERED A MASSIVE HEART ATTACK AND SH OCK RESULTING IN MULTIPLE ORGAN FAILURE AND MEMORY LOSS . II) AFTER HIS RECOVERY THE ASSESSEE COULD NOT TRACE THR EE ENTRIES OF INVESTMENTS WHICH WERE NOT PRODUCED BEFO RE THE ASSESSING OFFICER RESULTING IN ADDITION OF RS. 13 LACS. III) THAT INVESTMENT IN THE RELIANCE MUTUAL FUNDS WERE M ADE ON 28.3.2006 FOR RS. 8 LACS; IN FRANKLIN TEMPLETON MUTUAL FUND FOR RS. 3 LACS ON 30.5.2005 AND RS. 2 L ACS ON 23.12.2005 BY DRAWING AMOUNTS FORM JOINT ACCOUNT OF 4 ASSESSEE WITH HIS WIFE MRS SATINDER KAUR UPPAL AND MOTHER MRS PARMESHWARI DEVI WITH ICICI BANK. IV) THAT THE ASSESSEES MOTHER HAD EXPIRED ON 22.12.200 5 TO WHICH EFFECT DEATH CERTIFICATE WAS PRODUCED. V) THAT BANK CERTIFICATE DATED 2.1.2009 AND 27.7.2009 ISSUED BY ICICI BANK TOGETHER WITH CERTIFICATE FROM KARVY COMPUTERSHARE PVT LTD AND FRANKLIN TEMPLETON INVESTMENTS WERE ALSO PRODUCED IN SUPPORT OF PURCHA SE OF MUTUAL FUNDS BY MAKING PAYMENTS THROUGH CHEQUES DRAWN ON ICICI BANK. 6. THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 5. I HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL NOW PLACED BEFORE ME. THE ASSES SING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION SINCE THE SOURCE OF INVESTMENT COULD NOT BE PROVED. NOW THAT THE DOCUM ENTARY EVIDENCE IN THE FORM OF ASSESSEES MEDICAL CONDITIO N ESTABLISHES THAT HE COULD NOT PRODUCE NECESSARY EVI DENCE DUE TO COMPELLING CIRCUMSTANCES THE EVIDENCE SO ADDUCE D WAS ACCEPTED WAS SENT TO THE ASSESSING OFFICER FOR COMM ENTS VIDE THIS OFFICE LETTER NO. 542 DATED 18.11.2009. IN RE PLY THE ASSESSING OFFICER VIDE LETTER DATED 11.3.2010 SUBMI TTED AS UNDER:- I) REGARDING ADDITION OF RS. 13 00 000/- MADE BY TH E ASSESSING OFFICER ON A/C UNEXPLAINED INVESTMENT MAD E IN MUTUAL FUNDS IT IS SUBMITTED THAT THE ASSESSEE HAD NOT FILED PROPER EVIDENCE DURING THE COURSE OF ASSESSME NT. ON PERUSAL OF REPLY FILED BY THE ASSESSEE BEFORE Y OUR GOODSELF IT IS NOTICED THAT RS. 8 00 000/- WERE INV ESTED FOR PURCHASE OF RELIANCE MUTUAL FUNDS ON 28.3.2006 FOR WHICH THE ASSESSEE HAS FURNISHED CERTIFICATE FROM I CICI BANK IN WHICH THE ASSESSEE IS HAVING SB A/C NO. 001301522360. ITA IS FURTHER NOTICED THAT CHEQUE NO . 976151 FOR RS. 8 00 000/- ISSUED IN THE NAME OF REL IANCE EQUITY FUND WAS DEBITED FROM ACCOUNT NO. 001301522360 ON10.3.2006. 5 II) REGARDING INVESTMENT OF RS. 3 00 000/- MADE ON 3.5.2005 AND RS. 2 00 000/- ON 23.12.2005 IN FRANKL IN TEMPLETON INVESTMENT IT IS SUBMITTED THAT THE ASSE SSEE HAD NOT FILED PROPER EVIDENCE DURING THE COURSE OF ASSESSMENT. ON PERUSAL OF REPLY FILED BY THE ASSESS EE BEFORE YOUR GOODSELF IT IS NOTICED THAT RS. 3 00 00 0/- AND RS. 2 00 000/- WERE INVESTED WITH FRANKLIN TEMPLETO N INVESTMENT VIDE CHEQUE NO. 439402 DATED 30.5.2005 O F ICICI BANK SECTOR 9 CHANDIGARH AND CHEQUE NO. 438303 DATED 1.12.2005 OF ICICI BANK SECTOR 9 CHANDIGARH FOR WHICH THE ASSESSEE HAS FURNISHED CERTIFICATE OF ICICI BANK. ON FURTHER PERUSAL OF T HE CERTIFICATE IT IS NOTICED THAT THE CHEQUES WERE ISS UED BY THE ASSESSEE FROM THE JOINT ACCOUNT OF MRS PARMESHWARI DEVI & SHRI HARCHARAN SINGH R/O H.NO. 306 SECTOR 33A CHANDIGARH HAVING S.B. A/C NO. 001301518895. FROM THE REPLY OF THE ASSESSEE IT IS CLEAR THAT THE INVESTMENTS HAVE BEEN MADE IN MUTUAL FUNDS AGAINST DEBITS IN HIS JOINT BANK ACCOUNTS. T HERE IS NOTHING TO PROVE THE SOURCES THEREOF. ASSESSEE HAS NOT EXPLAINED THE SOURCE OF DEPOSITS IN THE SAID BA NK ACCOUNTS FROM WHERE CHEQUES WERE ISSUED FOR PURCHAS E OF MUTUAL FUND. THEREFORE EVEN IF THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE IS CONSIDERED S OURCE OF INVESTMENT STILL REMAINS UNEXPLAINED. YOUR GOOD SELF IS REQUESTED TO KINDLY CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER. 6. THE REMAND REPORT WAS FURTHER DISCUSSED WITH THE ASSESSEES COUNSEL ON 11.3.2010. 7. FROM THE ACCOUNT STATEMENTS OF THE APPELLANT S INVESTMENTS WITH FRANKLIN TEMPLETON DATED 30.3.2010 IT IS CLEAR THAT AN AMOUNT OF RS. 501525.72 ON ACCOUNT OF REDEMPTION OF UNITS WAS RECEIVED BY THE APPELLANT O N 25.10.2005 AND AN AMOUNT OF RS. 1123596.95 HAS BEEN RECEIVED ON 25.5.2005. THESE AMOUNTS WERE CREDITED TO THE JOINT ACCOUNT OF THE APPELLANT AND HIS MOTHER OUT OF WHICH INVESTMENT OF RS. 3 LACS ON 1.6.2005 AND RS. 2 LACS ON 26.11.2005 HAS BEEN MADE. 8. REGARDING THE INVESTMENT OF RS. 8 LACS IN RELIAN CE MUTUAL FUNDS ON 28.3.2006 THE SAME HAS BEEN VERY C LEARLY EXPLAINED AS AN AMOUNT OF RS. 7 55 625/- RECEIVED V IDE CHEQUE NO. 260384 DATED 2.2.2006 OF SBI TREASURY BRANCH AS PAYMENT OF CLAIM IN THE NAME OF SMT. PARMESHWARI DEVI ASSE SSEES 6 MOTHER WHO DIED ON 19.12.2005. A CERTIFICATE OF TH E SUB- POSTMASTER SECTOR 20 AND A COPY OF THE CHEQUE HAV E BEEN PRODUCED BEFORE ME (COPY ENCLOSED). I AM OF THE VI EW THAT THE APPELLANT HAS BEEN ABLE TO SATISFACTORILY EXPLAIN T HE SOURCE OF INVESTMENT. THE ADDITION OF RS. 13 LACS MADE U/S 6 9 IS THEREFORE DELETED ALLOWING ASSESSEES PLEA ON THIS GROUND. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE HAD MADE INVESTMENT IN PURCHASE OF MUTUAL FUNDS AMOUNTING TO RS. 3 LACS AND RS. 2 LACS WITH M/S FRANKLIN TEMPLETON MUTUAL FUNDS. AS REGARDS THE SOURCE OF THIS INVESTMENTS IT IS SEEN THAT THE ASSESSEE R ECEIVED AN MOUNT OF RS. 5 01 529.72 ON ACCOUNT OF REDEMPTION OF UNITS ON 25 .10.2005 AND AN AMOUNT OF RS. 11 23 596.95 WAS ALSO RECEIVED ON ACC OUNT OF REDEMPTION OF UNITS ON 24.5.2005. THIS FACT HAS BEEN CATEGORI CALLY MENTIONED IN THE ORDER OF CIT(A). THE ASSESSEE HAS ALSO FILED THE ACCOUNT STATEMENT OF M/S FRANKLIN TEMPLETON MUTUAL FUND ( PAGES 8 & 9 OF THE ASSESSEES PAPER BOOK). THERE IS NOTHING ON RECORD TO CONTROV ERT THE ABOVE SAID FINDINGS. OUT OF THE AMOUNT RECEIVED ON ACCOUNT OF REDEMPTION OF UNITS BY THE ASSESSEE ON 24.5.2005 AND 25.10.2005 THE AS SESSEE INVESTED RS. 3 LACS ON 1.6.2005 AND RS. 2 LACS ON 26.11.2005. IN OUR VIEW THE CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE CASE AS WELL AS THE EVIDENCE BROUGHT ON RECORD. THEREFORE WE HOLD THAT THE ASS ESSEE HAS SATISFACTORILY EXPLAINED THE SOURCE OF INVESTMENT OF RS. 3 LACS ON 1.6.2005 AND RS. 2 LACS ON 26.11.2005. 8. AS REGARD THE INVESTMENT OF RS. 8 LACS IN RELIAN CE MUTUAL FUND ON 28.3.2006 WE ARE OF THE VIEW THAT THE CIT(A) HAS C ORRECTLY DELETED THIS ADDITION ALSO. IT IS APPARENT FROM RECORD THAT THE AMOUNT OF RS. 7 55 625/- 7 WAS RECEIVED VIDE CHEUQE NO. 260384 DATED 2.2.2006 OF SBI TREASURY BRANCH BY THE ASSESSEE AS PAYMENT OF CLAIM IN THE N AME OF SMT. PARMESHWARI DEVI ASSESSEES MOTHER WHO DIED ON 19. 12.2005. IN SUPPORT OF THE ABOVE CONTENTION THE ASSESSEE HAS SUBMITTED A COPY OF CHEQUE NO. 260384 DATED 2.2.2006 OF SBI TREASURY BRANCH (ASSES SEES PAPER BOOK PAGE 11) COPY OF THE ACCOUNT OF LATE SMT. PARMESHW ARI DEVI IN THE POST OFFICE SECTOR 20 AND ALSO A CERTIFICATE FROM THE S UB POST MASTER SECTOR 20 CHANDIGARH (PAGE 12 OF THE ASSESSEES PAPER BOO K). IT IS ALSO CLAIMED THAT BALANCE AMOUNT OF RS. 44 000/- WAS INVESTED OU T OF PAST SAVINGS OF THE ASSESSEE. CONSIDERING THE ENTIRE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE WE ARE OF THE VIEW THAT ASSESSEE HAS SATISFACTORILY EXPLAINED THE SOURCES OF INVESTMENTS. 9. IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE O RDER OF CIT(A) IN DELETING THE ADDITION OF RS. 13 LACS MADE BY THE AS SESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S 69 OF THE ACT . 10. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11 26 172/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LONG TERM CAPITAL GAIN BY PASSING A SPEAKING ORDER WITHIN LEGAL POSITION REGARDING COST OF ACQUISITION AND INDEXATION WAS DISCUSSED THOROUGHLY AND PROVISIONS OF SECTION 49(2 1) OF THE INCOME TAX ACT 1961 WERE APPLIED . 11. DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE SOLD HIS SHARE OF PROPERTY NAMELY H.NO. 1106 SECTOR 8/C CHANDIGARH ON 23.1.2006 TO S/SHRI JAGRAM S/O SHRI BANKA RAM SMT. MEMO DEVI W/ O SHRI JAG RAM 8 SHIRI SATISH KUMAR AND SANJAY BANSAL SONS OF SHRI JAG RAM ALL RESIDENTS OF H.NO. 577 SECTOR 8 CHANDIGARH FOR A SALE CONSI DERATION OF RS. 75 LACS. THE ASSESSEE CLAIMED THE ACQUISITION OF SAID PROPER TY AT RS. 16 67 569/- AND HAS SHOWN CAPITAL GAINS AS PER THE FOLLOWING DE TAILS:- SALE CONSIDERATION 75 00 000/- LESS: INDEXED COST COST AS PER VALUATION REPORT FOR FY 1981-82 305000/100*497 15 15 850/- LESS: INDEXED COST OF EXPENSE INCURRED ON STAMP PAPER FOR FY1999-2000 118750/369*497 1 51 719/- TOTAL COST OF ACQUISITION 16 67 569/- CAPITAL GAINS 58 32 431/- 12. AS REGARDS THE MANNER OF ACQUISITION OF PROPERT Y IT WAS EXPLAINED BY THE ASSESSEE THAT PROPERTY WAS ACQUIRED BY THE A SSESSEE THROUGH GIFT DEED FROM HIS MOTHER SMT. PARMESHWARI DEVI VIDE GIF T DEED EXECUTED ON 24.8.1999. AS PER THE GIFT DEED THE PROPERTY NAME LY H.NO. 1106 SECTOR 8-C CHANDIGARH MEASURING 550 SQUARE YARDS WAS GIFT ED AS PER FOLLOWING DETAILS:- 1. LT COL HARCHARAN SINGH UPPAL S/O LATE MAJ. MATWAL SINGH R/O H.NO. 306 SECTOR 33-A CHANDIGARH . SHARE. 2. LT COL SUKHBIR SINGH UPPAL S/O LATE MAJ. MATWAL SIN GH R/O H.NO. 1106 SECTOR 8/C CHANDIGARH . SHARE 13. THE ASSESSING OFFICER IN VIEW OF THE PROVISIONS OF SECTION 49(1) OF THE ACT HELD AS UNDER:- 9 4.9(A) IN THE LIGHT OF THE ABOVE DISCUSSION THE C OST OF ACQUISITION OF ASSESSEES PROPERTY I.E. SHARE IN HOUSE NO. 11 06 SECTOR 8-C CHANDIGARH WILL BE ACTUAL COST OF ACQUISITION TO TH E PREVIOUS OWNER I.E. RS. 3 05 000/- AS SHOWN BY THE ASSESSEE HIMSE LF IN THE COMPUTATION OF LONG TERM CAPITAL GAINS RATHER THAN THE INDEX COST AS IN FINANCIAL YEAR 1981-82. THE INDEXED COST OF A CQUISITION TO THE ASSESSEE SHALL HOWEVER BE ALLOWED FOR THE DATE OF ACQUISITION OF THE PROPERTY I.E. DURING THE FINANCIAL YEAR 1999-20 00 AS THE ASSESSEE HAS ACQUIRED THE PROPERTY THROUGH GIFT DE ED EXECUTED ON 24.8.1999. ACCORDINGLY THE COST OF THE PROPERTY I S CALCULATED AS UNDER:- TABLE-II PARTICULARS ACTUAL COST INDEXED COST TOTAL COST VALUE OF PROPERTY AS ON 23.8.1999 3 05 000/- - - INDEXED COST OF ACQUISITION AS ON SALE DATE DURING FINANCIAL YEAR 2005-06 3 05 000/- 3 05 000 X 497/389 = 3 89 678/- 3 89 678/- STAMP DUTY AS ON 23.8.1999 I.E. YEAR OF ACQUISITION OF PROPERTY 1 18 750/- 1 18 750 X 497/389 = 1 15 619/- 1 51 619/- TOTAL INDEXED COST OF ACQUISITION 5 41 397/- 4.9(B) ADOPTING THE FIGURE OF COST OF ACQUISITION A S CALCULAT4D ABOVE THE LONG TERM CAPITAL GAINS ARE CALCULATED A S UNDER:- TABLE III SALE CONSIDERATION 75 00 000/- LESS: INDEXED COST OF ACQUISITION AS WORKED OUT ABOVE 5 41 397/- NET LONG TERM CAPITAL GAINS 69 58 603/- 10 THUS THE LONG TERM CAPITAL GAINS ARISING TO THE AS SESSEE IS A SUM OF RS. 69 58 603/- AS AGAINST A SUM OF RS. 58 32 43 1/- AS CLAIMED BY THE ASSESSEE. 14. ON APPEAL THE CIT(A) DELETED THE ADDITION OF R S. 11 26 172/- AND OBSERVED AS UNDER:- 11. I HAVE CONSIDERED THE PROVISIONS OF THE ACT AN D LEGAL POSITION AS RENDERED BY VARIOUS JUDGEMENTS. THERE ARE DIVERGENT VIEWS EXPRESSED BY VARIOUS BENCHES OF THE HONBLE I TAT ON THIS ISSUE. INITIALLY I ALSO THOUGHT THAT THE PRO VISIONS OF EXPLANATION (III) TO SECTION 48 WERE PLAIN & CLEAR STATING THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSES SEE. SIMILAR VIEW HAD BEEN TAKEN BY MUMBAI BENCH OF ITAT IN DCI T VS KISHORE KANGU 102 ITD 437 AFTER ANALYZING THE RELE VANT PROVISIONS OF THE ACT. BUT A CLOSER LOOK AND DETAI LED ANALYSIS OF THE ISSUE AS DONE IN THE CASE RELIED UPON BY THE A PPELLANT LED ME TO CONCLUDE THAT SECTION 45 TO 55A OF THE INCOME TAX ACT 1961 WHEN READ TOGETHER MAKE THE FOLLOWING THINGS CLEAR: THERE IS NO CAPITAL GAIN CHARGEABLE TO TAX AS A RES ULT OF TRANSFER OF A CAPITAL ASSET UNDER GIFT SINCE THE TRANSACTION INVOLVING A GIFT OF CAPITAL ASSET IS NO T REGARDED AS TRANSFER FOR THE PURPOSE OF SECTION 45 HOWEVER WHERE SUCH CAPITAL ASSET BECOMING THE PROP ERTY OF THE ASSESSEE UNDER GIFT IS SUBSEQUENTLY TRANSFER RED AS ENVISAGED IN SECTION 45 THE CAPITAL GAIN ARISING F ROM SUCH TRANSFER IS MADE CHARGEABLE TO TAX AND HAVING REGARD TO THE SPECIFIC PROVISIONS CONTAINED IN THE STATUE THE DATE AND COST OF ACQUISITION OF THE PREVIOUS OW NER ARE ADOPTED AS A COST AND DATE OF ACQUISITION OF TH E ASSESSEE FOR THE PURPOSE OF COMPUTATION OF INCOME F ROM SUCH CAPITAL GAINS. THE ENTIRE CAPITAL GAIN INCLUDI NG THE CAPITAL GAIN WHICH WOULD HAVE BEEN CHARGEABLE AS A RESULT OF TRANSFER OF A CAPITAL ASSET BY THE PREVIO US OWNER TO THE ASSESSEE AS A RESULT OF GIFT BUT FOR T HE PROVISIONS OF SECTION 47 THUS US MADE CHARGEABLE TO TAX 11 AT THE SECOND STAGE WHEN THE CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSESSEE UNDER GIFT IS TRANSFERRED BY HIM. A COMBINED READING OF EXPLANATION (III) TO SECTION 48 & EXPLANATION 1(B) TO SECTION 2(42A) SHOW THAT IMPORT ANCE IS ASSIGNED TO THE PERIOD OF HOLDING OF THE CAPITAL ASSET IN AS MUCH AS EXPLANATION (III) TO SECTION 48 REFER S TO THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE A SSESSEE WHEREAS EXPLANATION 1(B) TO SECTION 2(42A) PROVIDES FOR INCLUSION OF THE PERIOD FOR WHICH THE ASSET WAS HEL D BY THE PREVIOUS OWNER IN DETERMINING THE PERIOD FOR WH ICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE. SINCE DEFINITIONS IN SECTION 2 ARE APPLICABLE FOR T HE ENTIRE ACT THE LEGISLATIVE INTENTION BEHIND ENACTI NG THESE PROVISIONS IS VERY CLEAR TO TREAT THE DATE AS WELL AS COST OF ACQUISITION OF CAPITAL ASSET OF THE PREVIOU S OWNER TO BE THE DATE AND COST OF ACQUISITION OF THE ASSES SEE FOR THE PURPOSE OF COMPUTING CAPITAL GAIN IN TERMS OF SECTION 48. THIS IS THE SCHEME OF THE ACT AS LAID OUT IN THE RELEVANT PROVISIONS AND THIS IS THE CONTEXT IN WHICH THE SAME HAS TO BE UNDERSTOOD AND APPRECIATED. AS RIGHTLY CONTENTED BY THE LEARNED. COUNSEL FOR THE ASSESSEE HAD IT NOT BEEN THE INTENTION OF THE LEGI SLATURE THE EXPRESSION USED IN EXPLANATION (III) TO SECTION 48 WOULD HAVE BEEN .. FOR THE FIRST YEAR IN WHICH T HE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE AS USED IN SECTION 49(1). SINCE TRANSACTION OF GIFT IS NOT REGARDED AS TRANSF ER AND ACCORDINGLY CAPITAL GAIN ARISING FROM SUCH TRANSFER IS NOT MADE CHARGEABLE TO TAX U/S 45. HOWEVER THIS CAPIT AL GAIN BY IMPLICATION IS BROUGHT TO TAX AT SECOND STA GE WHEN CAPITAL ASSET BECOMING THE PROPERTY OF THE ASS ESSEE UNDER GIFT IS SUBSEQUENTLY TRANSFERRED BY HIM BY ADOPTING THE DATE AND COST OF ACQUISITION OF THE CA PITAL 12 ASSET OF THE PREVIOUS OWNER AS THE DATE AND COST OF ACQUISITION OF THE ASSESSEE. ONE SHOULD NOT GO BY THE LITERAL MEANING OF THE WOR DS OR BY THE GRAMMATICAL STRUCTURE OF THE SENTENCE WHILE INTERPRETING THE RELEVANT PROVISIONS OF EXPLANATION (III) TO SECTION 48. ON THE OTHER HAND SCHEMATIC METHOD OF INTERPRETATION IS TO BE ADOPTED GOING BY THE DESIGN OR PURPOSE WHICH LIES BEHIND THE RELEVANT PROVISION KEEPING IN MIND THE SPIRIT AND NOT THE LETTER OF LEGISLATURE. THE RELEVANT PROVISIONS THUS ARE TO B E INTERPRETED SO AS TO PRODUCE THE DESIRED EFFECT WHI CH WAS SOUGHT TO BE ACHIEVED. IT IS THEREFORE NECESSARY I N SUCH A SITUATION TO AVOID THE LITERAL INTERPRETATION OF THE RELEVANT PROVISIONS. IF IT IS SO DONE THE ONLY VI EW POSSIBLE FROM THE INTERPRETATION OF RELEVANT PROVIS IONS IS THAT THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IS TO BE INCLUDED IN DETERMINING THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE ASSESSEE AS PROVIDED IN EXPLANATION 1(B) TO SECTION 2 (42A) AND THIS POSITION IS APPLICABLE EVEN FOR WORKING OUT THE IND EXED COST OF ACQUISITION WITHIN THE MEANING OF EXPLANATI ON (III) TO SECTION 48. THE ASSESSING OFFICERS INTERPRETATION OF THE ISSUE WOULD RESULT IS NOT GIVING THE BENEFIT OF INDEXATION FOR THE PERIOD OF HOLDING OF CAPITAL ASSET BY THE PREVIOUS OWNER WHICH WILL DEFEAT THE VERY PURPOSE OF ALLOWING THE BENEFIT OF INDEXATION AS EXPLAINED IN PARAGRAPH NO. 35 OF CBDT CIR. NO. 636 DATED 31.08.1992 WHICH IS EXTRACT ED BELOW:- THE FINANCE ACT HAS RECAST THE SYSTEM OF TAXATION OF LONG-TERM CAPITAL GAINS. AT PRESENT AS ASSET IS CONSIDERED TO BE LONG-TERM IF IT IS HELD FOR A PERI OD OF MORE THAN 36 MONTHS EXCEPT FOR SHARES OF A COMPANY WHERE THE PERIOD OF HOLDING AHOULD BE MORE THAN 12 MONTHS. THIS DEFINITION CONTINUES TO BE THE SAME I N THE CHANGED FORMAT. IN THE SCHEME PRIOR TO 1.4.1992 A BASIC DEDUCTION OF RS. 15000 AND A FIXED PERCENTAGE OF TH E 13 BALANCE AMOUNT OF CAPITAL GAINS WAS ALLOWED AS DEDUCTION UNDER SECTION 48(2). THE PERCENTAGE DEPENDED ON THE NATURE OF THE ASSET AND THE STATUS OF THE ASSESSEE BUT WAS UNRELATED TO THE LENGTH OF THE PE RIOD OF HOLDING. THIS DEDUCTION WAS INTENDED TO GIVE A ROUGH AND READY RELIEF FOR INFLATION TO COUNTERACT BUNCH ING OF PROFITS AND TO EXCLUDE FROM THE TAX NET CAPITAL GAI NS WHICH WERE RELATIVELY SMALL. AS AN ADDITIONAL MEAS URE TO OFFSET THE EFFECT OF INFLATION ALL APPRECIATION BEFORE 1-4-1974 IN THE VALUE OF ASSETS WAS EXCLUDED FROM TAXATION. A FAIR METHOD OF ALLOWING RELIEF FOR THE SE FACTORS IS TO LINK IT TO THE PERIOD OF HOLDING FOR THIS PURPOSE THE COST OF ACQUISITION OF AND THE COST OF IMPROVEMENT TO THE ASSET ARE TO BE INFLATED TO ARRI VE AT THE INDEXED COST OF ACQUISITION AND INDEXED COST OF IMPROVEMENT AND THEN DEDUCT THESE AMOUNTS FROM THE SALE CONSIDERATION TO ARRIVE AT THE LONG-TERM CAPIT AL GAINS. THE CUT OFF DATE FOR ASSET HELD FOR PURPOSE S OF INDEXATION IS TAKEN AS 1-4-1981. ACCORDINGLY FOR AN ASSET ACQUIRED BEFORE THIS DATE ITS VALUE AS ON 1-4 -1981 WILL BE TAKEN FOR INDEXATION. THE COST OF IMPROVEM ENT AFTER THIS DATE ONLY WILL BE TAKEN INTO ACCOUNT FOR INDEXATION. AS IS CLEAR FROM PARA 35 OF THE ABOVE MENTIONED CIRCULAR THE LEGISLATIVE INTENTION TO INTRODUCE TH E CONCEPT OF INDEXED COST OF ACQUISITION AS APPLIED BY THE ASSESSING OFFICER RELYING THE EXPLANATION (III) TO SECTION 48 IS ASSIGNED THE LENGTH OF PERIOD OF HOL DING OF THE CAPITAL ASSET BY THE PREVIOUS OWNER WOULD GET COMPLETELY EXCLUDE WHILE GIVING THE BENEFIT OF INDEXATION. FURTHER IF WE GO BY THE ASSESSING OFFICERS REASON ING THERE WOULD BE RESULTANT CONFLICT BETWEEN EXPLANATI ON (III) & EXPLANATION (IV) OF SECTION 48 WHICH READ A S UNDER: (III) INDEXED COST 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 INFLATIO N INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY T HE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1 ST DAY OF APRIL 1981 WHICHEVER IS LATER; (IV) INDEXED COST OF ANY IMPROVEMENT MEANS AN AMOUNT WHICH BEARS TO THE COST OF IMPROVEMENT THE S AME 14 PROPORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N INDEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; AS IS CLEARLY EVIDENT FROM THE AFORESAID CLAUSE (IV ) IT PERMITS THE INDEXATION OF COST OF ANY IMPROVEMENT UNCONDITIONALLY AND IF THE SAME IS READ WITH SECTIO N 55(1)(B)(II) WHICH ALLOWS DEDUCTION FOR COST OF IMPROVEMENT INCURRED BY A PREVIOUS OWNER THE POSIT ION WHICH EMERGES IS THAT COST OF ANY IMPROVEMENT TO TH E CAPITAL ASSET INCURRED BY THE PREVIOUS OWNER IS ALS O ELIGIBLE FOR INDEXATION. THIS WILL RESULT IN AN AP PARENT ANOMALY IN AS MUCH AS THE COST OF IMPROVEMENT INCUR RED BY THE PREVIOUS OWNER WOULD BE ELIGIBLE FOR INDEXAT ION ON THE BASIS OF YEAR IN WHICH THE SAID IMPROVEMENT WAS DONE BY THE PREVIOUS OWNER WHEREAS IN CASE OF COST OF ACQUISITION THE YEAR OF ACQUISITION OF THE ASSET BY THE ASSESSEE WOULD BE RELEVANT FOR INDEXATION PURPOSE A ND NOT THE YEAR OF ACQUISITION BY THE PREVIOUS OWNER. 12. IN PARA 16 OF THE ITA NO. 7315/MUM/2007 AN EXA MPLE IS GIVEN WHICH FURTHER CLARIFIES THAT THE LITERAL M EANING OF CLAUSE (III) TO EXPLANATION TO SECTION 48 WOULD LEA D TO ILLOGICAL & UNREASONABLE RESULTS. FOR INSTANCE I N THE CASE WHERE CAPITAL ASSET HAS BECOME A PROPERTY OF THE AS SESSEE UNDER A GIST PRIOR TO THE CUT OFF DATE 0F 1.4.1981 BUT THE SAME IS TRANSFERRED BY HIM ONLY AFTER 1.4.1981: SAY IN F INANCIAL YEAR 1987-88 THE YEAR TO BE ADOPT FOR INDEXATION A S PER THE CONTENTION OF THE LEARNED D.R. WOULD BE FINANCIAL YEAR 1987- 88. HOWEVER THE COST OF ACQUISITION OF CAPITAL AS SET IN SUCH CASE WOULD BE TAKEN AS FAIR MARKET VALUE OF 1.4.198 1 BEING THE CUT OFF DATE EMBEDDED IN THE INDEXATION SCHEME AS AGREED EVEN BY THE LEARNED D.R. THE SITUATION WILL THUS A RISE WHERE THE COST OF ACQUISITION OF CAPITAL ASSET WOULD BE T AKEN AS OF 1.4.1981 WHEREAS THE COST INFLATION INDEX FOR THE Y EAR 1987-88 WOULD BE APPLIED TO THE SAID COST TO WORK OUT THE I NDEXED COST OF ACQUISITION. SUCH A WORKING WILL NOT STAND TO A NY REASONABILITY OR LOGIC AND WILL CERTAINLY DEFEAT TH E VERY 15 PURPOSE OF INDEXATION SCHEME AS EXPLAINED IN THE AF ORESAID CIRCULAR NO. 636 DATED 31.08.90. 13. FOR THE REASONS GIVEN ABOVE I AM OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN ARI SING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PR OPERTY OF THE ASSESSEE UNDER GIFT THE FIRST YEAR IN WHICH TH E CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WO RK OUT THE INDEXED COST OF ACQUISITION AS ENVISAGED IN EXPLANA TION (III) TO SECTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. 14. AS A RESULT RELYING ON THE JUDGMENTS OF HONBL E KOLKATA ITAT IN THE CASE OF MRS. MINA DEOGEN VS ITO; MUMB AI SPECIAL BENCH IN THE CASE OF MANJULA J SHAH (2010) 35 SOT 105 (MUM)(SB) AND PUSHPA SOFAT VS. ITO (2002) 81 IT D 1 (CHANDIGARH TRIBUNAL) I HOLD THAT THE COMPUTATION OF LONG TERM CAPITAL GAIN MADE BY THE APPELLANT IS CORRECT. THE ADDITION OF RS. 11 26 172/- IS THEREFORE DELETED ALLOWING ASSESSEES PLEA ON THIS GROUND. 15. SHRI AKHILESH GUPTA LD. DR SUBMITTED THAT EXPL ANATION (III) TO SECTION 48 PROVIDES FOR INDEXED COST OF ACQUISITIO N. HE POINTED OUT THAT THE WORDS USED THEREIN ARE THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE. HE ALSO REFERRED TO THE PROVISIO NS OF EXPLANATION 1(B) TO SECTION 2(42A) AND SUBMITTED THAT THE SAID EXPLA NATION ALLOWING INCLUSION OF PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER FOR DETERMINING THE PERIOD OF HOLDING BY THE ASSESSEE I S SPECIFICALLY APPLICABLE TO ASCERTAIN WHETHER IT IS A SHORT TERM CAPITAL ASSET OR LONG TERM CAPITAL ASSET. ACCORDING TO LD. DR THESE PROVISI ONS ARE DEEMED PROVISIONS WHICH CANNOT BE EXTENDED AND APPLIED TO DETERMINE THE INDEXED COST OF ACQUISITION WHICH IS SEPARATELY DEFINED IN (III) TO SECTION 48. HE THEREFORE SUBMITTED THAT THE VIEW TAKEN BY THE ASS ESSING OFFICER IN THIS 16 CASE IS CORRECT AND IN ACCORDANCE WITH LAW. SHRI A KHILESH GUPTA LD. DR VEHEMENTLY ARGUED THAT PROVISIONS OF EXPLANATION (I II) OF SECTION 48 ARE RELEVANT AND MATERIAL IN THIS CONTEXT. 16. SHRI ATUL GANDHI WHILE APPEARING FOR THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND A LSO RELIED ON THE DECISION OF THE ITAT MUMBAI SPECIAL BENCH IN THE C ASE OF DCIT V MANJULA J.SHAH (2009) 318 ITR (AT) 417 (MUMBAI)(SB) 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT WHILE DECIDING THIS ISSUE THE CIT(A) HAS FOLLOWED THE DECISION OF ITAT MUMBAI SP ECIAL BENCH IN THE CASE OF DCIT VS MANJULA J. SHAH [2009] 318 ITR (AT) 417 (MUMBAI)(SB). WE FIND THAT A SIMILAR ISSUE HAS BEE N DECIDED BY THE MUMBAI SPECIAL BENCH IN THE CASE OF DCIT V MANJULA J. SHAH (SUPRA). THE RELEVANT FACTS OF THE CASE OF SMT. MANJULA J. S HAH (SUPRA) WAS THAT FOR THE ASSESSMENT YEAR 2004-05 SMT. MANJULA J. SH AH (ASSESSEE IN THAT CASE) DECLARED A LONG TERM CAPITAL GAINS ARISING FR OM SALE OF RESIDENTIAL FLAT WHICH HAS BEEN RECEIVED BY THE ASSESSEE AS A GIFT UNDER GIFT DEED DATED FEBRUARY 1 2003 FROM HER DAUGHTER WHO HAD PU RCHASED IT ON JANUARY 29 1993. ADOPTING THE COST INFLATION INDE X OF 223 APPLICABLE TO THE FINANCIAL YEAR 1992-93 SHE WORKED OUT THE INDE XED COST OF ACQUISITION BY TAKING THE COST INFLATION INDEX OF 463 APPLICABL E TO THE YEAR IN QUESTION. HOWEVER THE ASSESSING OFFICER OPINED TH AT THE FLAT HAVING BEEN RECEIVED BY THE ASSESSEE AS GIFT ONLY ON FEBRU ARY 1 2003 THE FIRST YEAR IN WHICH IT WAS HELD BY HER WAS FINANCIAL YEAR 2002-03 AND THEREFORE THE COST INFLATION INDEX OF 447 APPLICAB LE TO THAT YEAR SHOULD HAVE BEEN ADOPTED FOR THE PURPOSE OF ARRIVING AT TH E INDEXED COST OF 17 ACQUISITION. ON APPEAL THE CIT(A) HELD THAT THE P ROVISIONS OF CLAUSE (B) OF EXPLANATION 1 TO SECTION 2 (42A) WERE APPLICABLE IN THE CASE OF THE ASSESSEE AND THE CAPITAL ASSET HAVING BECOME THE PR OPERTY OF THE ASSESSEE UNDER CIRCUMSTANCES MENTIONED IN SECTION 49(1) THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER WAS LIABLE TO BE INCLUDED IN DETERMINING THE PERIOD OF HOLDING OF THE ASSET BY T HE ASSESSEE AND THERE WAS NOTHING TO INDICATE THAT FOR DETERMINING THE IN DEXED COST OF ACQUISITIONS THE PROVISIONS OF SECTION 2(42A) AND SECTION 49(1) SHOULD NOT BE FOLLOWED. THE CIT(A) THEREFORE HELD THAT TH E ASSESSEE WAS ENTITLED TO THE BENEFIT OF INDEXATION WITH EFFECT FROM JANUA RY 29 1993. 18. THE REVENUE CHALLENGED THE ORDER OF CIT(A) BEFO RE THE TRIBUNAL. THE HON'BLE PRESIDENT KEEPING IN VIEW THE DIVERGEN T VIEW EXPRESSED BY THE DIVISION BENCHES CONSTITUTED A SPECIAL BENCH T O DECIDE THE FOLLOWING QUESTION:- WHILE COMPUTING THE CAPITAL GAINS IN THE HANDS OF AN ASSESSEE WHO HAD ACQUIRED THE ASSET TRANSFERRED UND ER GIFT WHETHER INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFERENCED TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET OR THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 19. THE ITAT SPECIAL BENCH MUMBAI DECIDED THE ABOV E QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND OBSERVED (HEAD NOTE) AS UNDER:- UNDER SECTION 2(42A) EXPLANATION 1(B) 2(29A) 48 AND 49(1) OF THE INCOME-TAX ACT 1961 READ TOGETHE R NO CAPITAL GAINS ARE CHARGEABLE TO TAX ON A GIFT AS A TRANSACTION INVOLVING A GIFT OF A CAPITAL ASSET IS NOT REGARDED AS A TRANSFER FOR THE PURPOSE OF SECTION 45. HOWEV ER WHERE SUCH CAPITAL ASSET BECOMING THE PROPERTY OF THE ASS ESSEE 18 UNDER A GIFT IS SUBSEQUENTLY TRANSFERRED AS ENVISAG ED IN SECTION 45 THE CAPITAL GAINS ARISING FROM SUCH TRA NSFER ARE CHARGEABLE TO TAX AND THE DATE AND COST OF ACQUISIT ION OF THE PREVIOUS OWNER ARE ADOPTED AS THE COST AND DATE OF ACQUISITION OF THE ASSESSEE FOR THE PURPOSE OF COMP UTATION OF SUCH CAPITAL GAINS. THE ENTIRE CAPITAL GAINS INCLU DING THE CAPITAL GAINS WHICH WOULD HAVE BEEN CHARGEABLE AS A RESULT OF TRANSFER OF THE CAPITAL ASSET BY THE PREVIOUS OW NER TO THE ASSESSEE AS A RESULT OF GIFT BUT FOR THE PROVISIONS OF SECTION 47 THUS ARE MADE CHARGEABLE TO TAX AT THE SECOND S TAGE WHEN THE CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSE SSEE UNDER GIFT IS TRANSFERRED BY HIM. ACCORDING TO THE DEFINITION IN EXPLANATION (III) T O SECTION 48 THE INDEXED COST OF ACQUISITION MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE S AME PROPORTION AS THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE A SSESSEE OR FOR THE YEAR BEGINNING ON APRIL 1 1981 WHICHEVER I S LATER. A COMBINED READING OF THE EXPRESSION INDEXED COST OF ACQUISITION USED IN SECTION 48 AS DEFINED IN EXPLA NATION 1(B) TO SECTION 2(42A) SHOWS THAT IMPORTANCE IS ASS IGNED TO THE PERIOD OF HOLDING OF THE CAPITAL ASSET IN AS MU CH AS EXPLANATION (III) TO SECTION 48 REFERS TO THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE WHEREAS EXPLANATION 1(B) TO SECTION 2(42A) PROVIDES FOR INC LUSION OF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PRE VIOUS OWNER IN DETERMINING THE PERIOD FOR WHICH ANY CAPI TAL ASSET IS HELD BY THE ASSESSEE. HAVING REGARD TO THIS ASP ECT AS WELL AS KEEPING IN VIEW THAT THE DEFINITIONS GIVEN IN SE CTION 2 ARE APPLICABLE FOR THE ENTIRE ACT THE LEGISLATIVE INTE NTION BEHIND ENACTING THESE PROVISIONS TO TREAT THE DATE AS WELL AS COST OF ACQUISITION OF THE CAPITAL ASSET BY THE PREVIOUS OW NER TO BE THE DATE AND COST OF ACQUISITION OF THE ASSESSEE FO R THE PURPOSE OF COMPUTING CAPITAL GAINS IN TERMS OF SECT ION 48 IS VERY CLEAR. THIS IS THE SCHEME OF THE ACT AS LAID OUT IN THE RELEVANT PROVISIONS AND THIS IS THE CONTEXT IN WHIC H THE SAME 19 HAS TO BE UNDERSTOOD AND APPRECIATED. GOING BY THE DESIGN OR PURPOSE WHICH LIES BEHIND THESE PROVISIONS SO AS TO PRODUCE THE DESIRED EFFECT WHICH WAS SOUGHT TO BE A CHIEVED THE ONLY VIEW POSSIBLE FROM THE INTERPRETATION OF T HE RELEVANT PROVISIONS IS THAT THE PERIOD FOR WHICH THE ASSET W AS HELD BY THE PREVIOUS OWNER IS TO BE INCLUDED IN DETERMINING THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE ASSESSEE AS PROVIDED IN EXPLANATION 1(B) TO SECTION 2(42A) AND THIS POSITION IS APPLICABLE EVEN FOR WORKING OUT THE IND EXED COST OF ACQUISITION WITHIN THE MEANING OF EXPLANATION (I II) TO SECTION 48. WHEN THE COST OF ACQUISITION TO THE PREVIOUS OWNER AS ON THE DATE OF ACQUISITION OF THE CAPITAL ASSET BY HIM IS TO BE ADOPTED AS THE COST OF ACQUISITION TO THE ASSESSEE EVEN FOR THE PURPOSE OF WORKING OUT THE INDEXED COST OF ACQU ISITION AS PER THE MEANING GIVEN IN EXPLANATION (III) TO SE CTION 48 IT IS NOT LOGICAL TO ADOPT THE COST INFLATION INDEX FO R THE YEAR IN WHICH THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE AND NOT THAT FOR THE YEAR IN WHICH THE ASSET WAS AC QUIRED BY THE PREVIOUS OWNER. FOR THE PURPOSE OF COMPUTING T HE LONG TERM CAPITAL GAINS ARISING FROM THE TRANSFER OF A C APITAL ASSET WHICH HAD BECOME PROPERTY OF THE ASSESSEE UNDER THE GIFT THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY T HE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST O F ACQUISITION AS ENVISAGED IN EXPLANATION (III) TO SE CTION 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. IN T HAT VIEW OF THE MATTER THE INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS BE TO COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. THE FIXED PERCENTAGE METHOD FOLLOWED EARLIER BY ALLOWING DEDUCTION UNDER SECTION 48(2) WAS DEPENDEN T ON THE NATURE AND STATUS OF THE ASSESSEE BUT WAS UNRELAT ED TO THE LENGTH OF PERIOD OF HOLDING. THIS DEDUCTION WAS IN TENDED TO GIVE A ROUGH AND READY RELIEF FOR INFLATION. IT WA S HOWEVER FELT THAT A FAIR METHOD OF ALLOWING RELIEF FOR THES E FACTORS 20 WOULD BE TO LINK IT TO THE PERIOD OF HOLDING AND F OR THIS PURPOSE PROVISIONS WERE MADE TO INFLATE THE COST ACQUISITION OF THE ASSET AND COST OF ACQUISITION AN D INDEXED COST OF IMPROVEMENT AND DEDUCT THESE AMOUNTS FROM T HE SALE CONSIDERATION TO ARRIVE AT THE LONG-TERM CAPITAL GA INS. IT IS THUS CLEAR THAT THE LEGISLATIVE INTENTION TO INTROD UCE THE CONCEPT OF INDEXED COST OF ACQUISITION AND INDEX ED COST OF IMPROVEMENT IN THE STATUE HAS BEEN TO ALLOW DED UCTION WHILE COMPUTING THE CAPITAL GAINS ON THE BASIS OF L ENGTH OF THE PERIOD OF HOLDING OF THE CAPITAL ASSET. ONE SHOULD NOT GO BY THE LITERAL MEANING OF THE WO RDS OR BY THE GRAMMATICAL STRUCTURE OF THE SENTENCE WHI LE INTERPRETING THE RELEVANT PROVISIONS OF EXPLANATION (III) TO SECTION 48. ON THE OTHER HAND A SCHEMATIC METHOD OF INTERPRETATION IS TO BE ADOPTED GOING BY THE DESIGN S OR PURPOSE WHICH LIES BEHIND THE RELEVANT PROVISIONS K EEPING IN MIND THE SPIRIT AND NOT THE LETTER OF LEGISLATURE. THE RELEVANT PROVISIONS THUS ARE TO BE INTERPRETED SO AS TO PROD UCE THE DESIRED EFFECTS WHICH WAS SOUGHT TO BE ACHIEVED. I T IS THEREFORE NECESSARY IN SUCH A SITUATION TO AVOID TH E LITERAL INTERPRETATION OF THE RELEVANT PROVISIONS. THE SETTLED PRINCIPAL OF STATUTORY INTERPRETATION W ITH REFERENCE TO TAX LAWS IS THAT THE WORD IN THE STATU TE ARE TO BE UNDERSTOOD IN THE SENSE IN WHICH THEY BEST HARMONIZ E WITH SUBJECT OF THE ENACTMENT AND OBJECT WHICH THE LEGI SLATURE HAS IN VIEW. THIS IS ALSO KNOWN AS THE RULE OF PURP OSIVE CONSTRUCTION. THE OBJECT OF ALL RULES OF INTERPRET ATIONS IS TO GIVEN THE EFFECT TO THE OBJECT OF ENACTMENT AND SUC H OBJECT OR LEGISLATIVE INTENTION CAN BE GATHERED FROM THE MEMO RANDUM EXPLAINING THE RELEVANT PROVISIONS. 20. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO TH E FACTS OF THE CASE DECIDED BY THE ITAT SPECIAL BENCH (MUMBAI). IN T HE INSTANT CASE ALSO THE ASSESSEE ACQUIRED THE PROPERTY FROM HIS MOTHER SMT. PARMESHWARI DEVI ON 24.8.1999 THROUGH A GIFT DEED AND THE PREVI OUS OWNER IN THIS CASE 21 WAS SMT. PARMESHWARI DEVI MOTHER OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF ITAT SPECIAL BENCH (MUMBAI ) IN THE CASE OF DCIT VS MANJULA J.SHAH (SUPRA) WE CONFIRM THE ORD ER OF CIT(A) IN HOLDING THAT FOR THE PURPOSE OF LONG TERM CAPITAL G AIN ARISING FROM THE TRANSFER OF CAPITAL ASSETS WHICH HAD BECOME PROPERT Y OF THE ASSESSEE UNDER GIFT THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST OF AC QUISITION AS ENVISAGED IN EXPLANATION (III) TO SECTION 48 AFTER TAKING INT O ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIO US OWNER. IN THIS CASE THE PREVIOUS OWNER WAS SMT. PARMESHWARI DEVI THE M OTHER OF THE ASSESSEE CONSEQUENTLY WE DISMISS GROUND NO.2 OF T HE APPEAL. 21. BEFORE PARTING WITH THIS CASE WE OBSERVE THAT THE ARGUMENTS ADVANCED BY SHRI AKHILESH GUPTA LD. DR ARE SIMILAR TO THOSE TAKEN BY THE DEPARTMENT IN THE CASE OF MANJULA J. SHAH (SUP RA). THE SPECIAL BENCH HAS CONSIDERED SUCH ARGUMENTS OF THE DEPARTME NT AND THE SAME WERE REJECTED. IN VIEW OF THE DECISION OF THE ITAT SPECIAL BENCH MUMBAI IN THE CASE OF MANJULA J. SHAH (SUPRA) WE D O NOT SEE ANY MERIT IN THE ARGUMENTS ADVANCED BY LD. DR. 22. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER 2011. SD./- SD/- (D.K.SRIVASTAVA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : NOVEMBER 2011 RKK 22 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR