2012 (3) TMI 256 - AT - Income Tax

Assessee s claim with regard to benefit of indexation available to him from the year it was acquired by the 1st owner as against the year it was held by the assessee - the assessee held the property upon the death of his father and became owner of property by inheritance - the AO as per Explanation (iii) to section 48 of the Act contented that the assessee could get benefit of indexation only from the date when the asset was first held by him - Held that - U/s 49(1)(iii), where the capital asset became the property of the assessee by succession, inheritance or devaluation, the cost of acquisition of asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee - the period from 1.04.1981 till the death of previous owner shall be included in the period of holding by the assessee for the purpose of determination of indexation cost of the property Dis allowing deduction under sec. 54 of the Act in respect of the whole of the amount invested by the assessee in the purchase of residential house - assessee purchased residential property in joint name with his wife and claimed deduction under sec. 54 in respect of amount of invested in residential property and the whole purchase consideration was paid by the assessee only out of sale proceeds of the property the name of his wife in the agreement to transfer was included only to avoid future hassle due to old age of the assessee his wife has not contributed towards purchase of property nor does her name get reflected in the possession certificate - Held that - the assessee had invested ₹ 80,00,000/- in the house property, which was jointly held by him with his wife, his wife is a joint owner and did not have any source of income - property was purchased only by the assessee by deploying long term capital gain on sale of property, which he received on inheritance - the name of his wife has been entered in the sale agreement just for the purpose of security reasons - as per Section 64(1)(iv) subject to provisions of sec. 27(i) the income as arises directly or indirectly to the spouse of an individual from the assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration shall be included in the income of such individual - Once the assessee is owner, the capital gain, if any, on sale will be assessable in the hands of the assessee only - the assessee will be eligible for benefit of entire amount spent on acquisition of new asset, which is jointly held by him with his wife - allow the benefit of sec. 54 in respect of entire amount of ₹ 80,00,000/- - both the appeals of revenue were dismissed.

Summary

Issues:
1. Benefit of indexation for long term capital gain.
2. Deduction under sec. 54 for investment in residential property.

Analysis:
1. The first issue pertains to the benefit of indexation for long term capital gain. The Assessing Officer (AO) contended that the indexation benefit should be allowed from the date the assessee first held the property, while the assessee claimed indexation from the year it was acquired by the 1st owner. The AO computed the cost of acquisition differently, relying on a previous ITAT decision. However, the CIT(A) held that the period of holding by the previous owner should be included for indexation calculation. The Tribunal agreed with the CIT(A), citing relevant provisions and a Special Bench decision, concluding that indexation cost should be considered from the fair market value of the asset as on 1.04.1981.

2. The second issue concerns the deduction under sec. 54 for the investment in a residential property jointly held by the assessee and his wife. The AO restricted the deduction to half the amount invested, as the property was jointly held. The CIT(A) noted that the entire amount was invested by the assessee, fulfilling the conditions under sec. 54. The Tribunal further explained that under relevant sections, the income from the property would be assessable in the hands of the assessee, even if jointly held, thereby justifying the allowance of the full deduction. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.