2013 (9) TMI 763 - HC - Income Tax

Base year for considering cost of inflation index (CII) for computing long term capital gain on inheritance of property - Assessee had taken CII for the year 1981-82 - however AO was of the opinion that CII should be as per the Financial Year 1998-99, as the property was acquired by the assessee on 23.12.1998 Held that - Reliance has been placed upon the judgment on the case of B.N.Vyas (Guardian of Minor, B.B.Vyas) reported in 1985 (7) TMI 46 - GUJARAT High Court , wherein it was held that for the purpose of computation of long term capital gain, the indexed 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 - In the aforesaid decisions, it was a case of gift. However, same analogy would be applied with respect to the property of inheritance Decided against the Revenue.

Summary

Issues:
Challenge to ITAT order on cost inflation index for capital gain calculation upon property inheritance.

Analysis:
The Tax Appeal was filed by the Revenue against the ITAT judgment regarding the computation of capital gains on the sale of inherited property. The main issue was the determination of the "Cost Inflation Index" for the property inherited by the assessee. The property was inherited by the assessee and his brother upon their father's demise in 1998, and later sold for Rs. 3.35 crores. The assessee calculated his share of capital gain using the base year 1981-82, while the Assessing Officer recalculated it based on the financial year 1998-99, resulting in a higher assessment.

The CIT(Appeals) relied on a previous tribunal decision and affirmed by the Bombay High Court, holding that the "Cost Inflation Index" should be considered from 1.4.1981. The Revenue appealed this decision before the ITAT, which upheld the CIT(Appeals) order. The key question before the High Court was whether the indexed cost of acquisition for long-term capital gain should be based on the year the property was inherited or the year the previous owner acquired it. The court referred to previous judgments, including a decision by the Gujarat High Court and the Supreme Court, stating that the indexed cost of acquisition should be determined based on when the previous owner first held the asset, not when the assessee became the owner.

Consequently, the High Court found no error in the ITAT's decision to dismiss the Revenue's appeal and uphold the CIT(Appeals) order. The indexed cost of acquisition was allowed from the base year of 1.4.1981, resulting in the deletion of the additional long-term capital gain assessment. As no substantial question of law arose, the appeal by the Revenue was dismissed, and no costs were awarded in the case.