2014 (10) TMI 888 - AT - Income Tax

Long term capital gains - indexation of the cost of the property - whether the index cost for acquisition is applicable for 1981-82 or financial year 2005-06 in which the property was inherited by the assessee - assessee taking into account expenditure in connection with transfer and indexed cost of acquisition for computation capital gain - Held that - Special Bench in the case of Manjula J Shah Vs. DCIT (2009 (10) TMI 646 - ITAT MUMBAI) which has been confirmed by the Hon ble Bombay High Court reported in (2011 (10) TMI 406 - BOMBAY HIGH COURT) wherein held that when the assessee sells his immovable property which is acquired under gift or will, while computing the capital gain the index cost of acquisition has to be computed with reference to the year in which previous owner first held the asset and not the year in which the assessee became the owner of the asset. Therefore, the ratio of this decision is squarely applicable to the facts of the present case of the assessee. Thus we direct the AO to allow the cost inflation indexation to the assessee from 01.04.1981 for computation of capital gains. - Decided in favour of assessee

Summary

Issues:
Calculation of indexed cost of acquisition for long term capital gains arising from the transfer of a property inherited by the assessee.

Analysis:
The appeal filed by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2008-09. The assessee, a non-resident individual, earned long term capital gains from the sale of property inherited jointly with siblings after the demise of the mother. The dispute arose regarding the computation of capital gains, specifically the indexation of the cost of acquisition. The Assessing Officer disagreed with the assessee's indexation method and calculated it from the financial year 2005-06. The assessee, relying on legal provisions and precedents, argued for indexation from 1981-82. The CIT(Appeals) favored the assessee's position, citing the Mumbai Special Bench decision in the case of DCIT v. Manjula J. Shah, which emphasized considering the period of holding by the previous owner for calculating capital gains.

The Tribunal analyzed whether the indexed cost for acquisition should be applicable for 1981-82 or the financial year 2005-06 when the property was inherited. Referring to the Mumbai Special Bench decision, the Tribunal held that the indexed cost of acquisition should be determined based on the year when the asset was first held by the previous owner. The Tribunal also cited the Bombay High Court's decision in the case of CIT v. Manjula J. Shah, which emphasized the importance of deemed holding of the asset by the assessee for calculating long-term capital gains tax liability. By aligning with the decisions of the Mumbai Special Bench and the Bombay High Court, the Tribunal dismissed the Revenue's appeal and upheld the order of the CIT(Appeals) in favor of the assessee.

In conclusion, the Tribunal affirmed that the indexed cost of acquisition should be computed based on the year when the property was first held by the previous owner, supporting the assessee's claim. The Tribunal found no grounds to interfere with the CIT(Appeals) decision, and consequently, the appeal of the Revenue was dismissed.