Meaning of “Cost of acquisition of asset”

Case Name : Cit vs. Rajesh vitthalbhai patel 

Citation : [2013] 37 taxmann.Com 439/218 taxman 301 (guj.)

Court : Gujarat high court

Section : 49

Meaning : Term ‘cost of acquisition of the asset’ is explained in explanation (iii) to section 48. In terms of such explanation, indexed cost of acquisition would be 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 held by the assessee or for the year beginning on 1-4-1981, whichever is later. In simple words, therefore, for an asset acquired prior to 1-4-1981 the indexed cost of acquisition would be the cost of acquisition multiplied by the ratio of the cost inflation index in the year in which assessee’s asset is transferred to the cost of inflation index for the year beginning on 1-4-1981. The revenue, however, submitted that such interpretation would fail to take into account the expression ‘cost inflation index for the first year in which the asset was held by the assessee’. In its opinion the ‘assessee’ referred to under such expression would be the present assessee and not the previous owner. Such interpretation cannot be accepted. By virtue of a deeming fiction provided in sub-section (1) of section 49, cost of acquisition in hands of the assessee would be the cost for which the previous owner of the property acquired it. While working out the cost of acquisition of the asset in the hands of previous owner, one cannot transpose the assessee in explanation (iii) to section 48.