2012 (8) TMI 958 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the addition of Rs. 29,30,000 as short-term capital gains.
2. Denial of the benefit of indexed cost of acquisition and construction.
3. Classification of the transaction as short-term capital gains instead of long-term capital gains.

Summary:

Issue 1: Validity of the Addition of Rs. 29,30,000 as Short-Term Capital Gains
The assessee contended that the amount received was part of a family settlement and thus not taxable. The AO disagreed, treating the amount as consideration for the release of the assessee's share in the property, thereby subjecting it to capital gains tax. The Tribunal upheld the AO's view, stating that the release of the right in the property for monetary consideration constitutes a transfer u/s 2(47)(i) and is taxable.

Issue 2: Denial of the Benefit of Indexed Cost of Acquisition and Construction
The assessee argued that the cost of acquisition should be based on the fair market value as of 1st April 1981, and the cost of improvement should be considered. The Tribunal agreed with the assessee, directing the AO to adopt the fair market value as of 1st April 1981 and allow indexation benefits. The Tribunal also instructed the AO to consider the cost of improvement from the year of construction in 1987.

Issue 3: Classification of the Transaction as Short-Term Capital Gains Instead of Long-Term Capital Gains
The assessee claimed that the transaction should be treated as long-term capital gains, considering the period of holding by the previous owner. The Tribunal supported this view, referencing s. 2(42A), Expln. 1(b), which includes the period held by the previous owner. Consequently, the Tribunal directed the AO to treat the capital gain as long-term capital gains.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the AO to:
1. Allow the adoption of the fair market value as of 1st April 1981 and provide indexation benefits.
2. Consider the cost of improvement from the year of construction.
3. Treat the capital gain as long-term capital gains.