INCOME TAX ACT, 1961

Section 45 Section 47 Section 49

Capital gains - Cost of acquisition - Applicability of sections 47A and 49 -

The first transfer of the property was by SCMCL, to KBPL, its wholly owned subsidiary company and the second transfer was as per the scheme of amalgamation, amalgamating KBPL with the assessee, KCPL. As such, as per the provisions of section 49, the cost of acquisition of the amalgamating company shall be the cost of acquisition to the assessee, which, in turn, shall be the cost of acquisition of SCMCL, i.e., that in 1921, when the property was acquired by it. It is this cost which was final. AO held that provisions of section 47A got invoked along with those of section 49(3), due to which, the cost at which the immoveable property was acquired by KBPL in the year 2003 from SCMCL, became the cost of acquisition for the purpose of the calculation of long-term capital gain; and that so, the cost at which the property was acquired by the amalgamated company in 2003, became its cost of acquisition and the period of holding was also to be considered from the year 2003. AO observed that as per the sale deed provided by the assessee, the immoveable property had been purchased for a total cost of Rs. 14 lakhs, which included the cost of the land as well as that of the constructed area, i.e., the building; that as per the balance sheet of KBPL for the year ended on 31-3-2014, the value of the land was Rs. 12.65 lakhs; that therefore, the cost of acquisition of the land for the assessee company, KCPL, was being considered at Rs. 12.65 lakhs and the period of holding of the same was to be considered from 1-12-2003, i.e., the date on which the land was acquired by KBPL, and the indexation benefit was to be allowed from assessment year 2003-04, instead of from 1981, as claimed by the assessee. CIT(A) had deleted the addition made by the AO.Held: It is only when there occurs chargeability of capital gain as per the provisions of section 47A, that section 49(3) would kick in, so as to ensure avoidance of double taxation. So, evidently, in case the provisions of section 47A themselves are not invoked, there was no case for invoking those of section 49(3) at all. Here, was is relevant to reiterate that at the time of amalgamation of KBPL with KCPL, as was the case at the time of transfer of the property from SCMCL to KBPL, no capital gain was charged. Now, therefore, even if KBPL ceased to be the wholly owned subsidiary of SCMCL, there was no exemption to be withdrawn by invoking the provisions of section 47A. The CIT(A) had held that '.....it is also clarified that the period of holding shall also start from 1-4-1981 in accordance with the principle laid down by the Delhi High Court in the case of Arun Shungloo Trust v. CIT (2002) 249 CTR 294 (Del) : 2012 TaxPub(DT) 1616 (Del-HC).' Evidently, therefore, it was qua the period of holding that 'Arun Shungloo Trust v. CIT' (supra) had been referred to by the CIT(A). Therein, it was the period of holding which was adjudicated on considering the provisions of Explanation 1(i)(b) to section 2(42A), along with Explanation 1(iii) to section 48 and the provisions of section 49, and it was held that period of holding shalol include the period for which the asset was held by the previous owner, as per the Explanation to section 49(1).

Followed:Arun Shungloo Trust v. CIT (2002) 249 CTR 294 (Del) : 2012 TaxPub(DT) 1616 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 32 Section 50 Section 50A

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