2014 (9) TMI 1093 - AT - Income Tax

Indexation on cost of acquisition of the tenancy rights as on 1.4.1981 - capital gain on transfer of capital asset acquired by the assessee from the previous owner - cost of acquisition of tenancy rights acquired by the previous owner i.e., father of the assessee without any cost in the year 1973 is stood itself at Nil to the assessee as on 1.4.1981 - Held that - We find that there is no infirmity in the finding and the conclusion drawn by the learned Commissioner (Appeals) as now in wake of decision of the Hon ble Jurisdictional High Court in Manjula J. Shah (2011 (10) TMI 406 - BOMBAY HIGH COURT) it is quite settled that while computing the capital gain arising out of transfer of capital asset acquired by the assessee from the previous owner, the index cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. Here in this case, it is undisputed fact that the tenancy right was acquired by his father much before 1st April 1981, and the assessee became the owner on distribution of assets on dissolution of the firm in view of section 49(1)(iii)(b), therefore, the cost of acquisition has rightly been held to be adopted from 1st April 1981. Thus, the order of the learned Commissioner (Appeals) is affirmed and the ground raised by the Department is dismissed.

Summary

Issues Involved:
Challenge to indexation on cost of acquisition of tenancy rights under section 143(3) of the Income Tax Act, 1961 for the assessment year 2007-08.

Analysis:
The appeal was filed by the Revenue against the order passed by the Commissioner (Appeals) regarding the quantum of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2007-08. The main contention raised was regarding the indexation on the cost of acquisition of tenancy rights acquired by the assessee's father without any cost in 1973, which the Revenue argued should be considered as nil cost to the assessee as of 1st April 1981. The assessee sold the tenanted property during the year and claimed long term capital gain on surrender of the tenancy rights. The Assessing Officer rejected the inflated cost of index at a certain amount, stating that no cost had been incurred by the assessee in the acquisition of tenancy rights. However, the Commissioner (Appeals) allowed the indexation based on the fair market value as on 1st April 1981, following the decision of the Hon'ble Jurisdictional High Court in a specific case. The Commissioner held that the tenancy right was acquired much before 1981, and thus the value had to be adopted as on 1st April 1981. The index cost of acquisition was deemed to be the cost for which the previous owner had acquired the property. The Tribunal, after considering the submissions and the previous order, affirmed the Commissioner's decision based on the settled principle that the index cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. As the tenancy right was acquired by the father before 1981, the cost of acquisition was rightly held to be adopted from 1st April 1981. Therefore, the Revenue's appeal was dismissed, and the Commissioner's order was upheld.