2013 (5) TMI 150 - AT - Income Tax

Computation of Capital Gains - Benefit of indexation - Fair market value of the capital asset - Period of Holding - Held that - Each of the three owners through whom the assessee and her sister have derived their title, i.e., directly or indirectly, acquired the property prior to 01.04.1981. - no infirmity in the treatment of the fair market value of the asset as on 01.04.1981 as the cost of acquisition. The assessee having 50% share therein can, consequently, claim only 50% of the said value in the computation of the long term capital gains in her hands - A better way would be to compute the entire long term capital gains on the sale of house property, and allocate the capital gains so computed to the extent of 50% each in the hands of the assessee and her sister, Ms. Crystal Perry - We direct like-wise, as has in fact, the ld. CIT(A) - We decide accordingly. Regarding Period of Holding - Held that - The Special Bench of the tribunal in the case of Dy.CIT vs. Manjula J. Shah (2009 (10) TMI 646 - ITAT MUMBAI) has confirmed the indexation benefit since 01.04.1981 onwards - The said decision by the tribunal has been since upheld by the hon ble jurisdictional high court in the case of CIT vs. Manjula J. Shah (2011 (10) TMI 406 - BOMBAY HIGH COURT) - The holding period of the assessee in respect of the said asset, again, to be reckoned with reference to the holding by the previous owner, the indexation benefit, which is to be applied to a long-term capital asset and, further, is only for providing the benefit of inflation in the working of the capital gains for the period of holding since 01.04.1981, could not be denied to the assessee. We do not find any merit in the Revenue s case - We decide accordingly - decided in favour of Assessee.

Summary

Issues involved:
1. Determination of fair market value of a capital asset as the cost of acquisition for computing long term capital gains.
2. Application of cost inflation index from a specific date for calculating indexed cost of acquisition.

Analysis:

Issue 1:
The first issue in the appeal concerns the fair market value of a capital asset as the cost of acquisition for computing long term capital gains. The case involved a house property acquired through inheritance and wills dating back before 01.04.1981. The Appellate Tribunal examined the ownership history of the property, which was bequeathed to the current owners by their grandfather through a will probated in the Bombay High Court. The Tribunal determined that the fair market value of the property as on 01.04.1981 should be considered the cost of acquisition, as each previous owner, directly or indirectly, acquired the property before the specified date. The Tribunal directed the computation of long term capital gains based on this fair market value, allocating the gains between the current owners accordingly. The decision was supported by the legal provisions regarding the cost of acquisition in cases of inheritance and wills, ensuring that the indexation benefits were appropriately applied. The Tribunal dismissed the Revenue's appeal on this issue.

Issue 2:
The second issue raised in the appeal pertained to the application of the cost inflation index for calculating the indexed cost of acquisition. The dispute centered on the date from which the indexation benefit should be applied, either from the date of acquisition by the current owner or a specific earlier date. The Revenue argued for a restricted application of the cost inflation index, starting from the date the property devolved on the current owner. However, the Appellate Tribunal, following previous decisions by the Tribunal and the jurisdictional high court, ruled in favor of the assessee, allowing the indexation benefit from 01.04.1981 onwards. The Tribunal emphasized that the law deemed the cost of acquisition to be that of the previous owner and required the holding period to be reckoned accordingly, justifying the application of indexation benefits from the specified date. Citing relevant legal precedents, the Tribunal rejected the Revenue's contentions and dismissed the appeal on this issue as well.

In conclusion, the Appellate Tribunal upheld the decisions of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal, providing detailed reasoning for the determination of the fair market value as the cost of acquisition and the application of the cost inflation index for calculating long term capital gains.