2013 (9) TMI 886 - HC - Income Tax

Indexation year for computation of long term capital gain in case of gift of capital asset Held that - Reliance has been placed upon the judgment in the case of Commissioner of Income Tax v. Manjula J. Shah, 2011 (10) TMI 406 - BOMBAY HIGH COURT , wherein it has been held that indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was held by the assessee . Since the expression held by the assessee is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included Assessee must be treated to hold the capital asset in the year of acquisition of previous year - The counsel for the revenue is not able to point out any distinguishing features in this case which would require not following the binding decision of this court in Manjula Shah Decided against the Revenue.

Summary

Issues:
1. Adoption of cost inflation index base year.
2. Interpretation of Section 48 of the Income Tax Act.
3. Reliance on previous court decisions.

Issue 1: Adoption of cost inflation index base year

The primary issue in this case revolved around whether the Tribunal was justified in upholding the order directing the adoption of the cost inflation index base year as on 01.04.1981 despite the Assessee becoming the legal and real owner of the property in the assessment year 2007-08. The Tribunal noted that since the property was acquired prior to 01.04.1981, the cost of acquisition as on that date had to be considered. The Tribunal relied on a decision of the Hon'ble Bombay High Court, and as the view taken by the CIT(A) aligned with this decision, the appeal filed by the Revenue was dismissed. The Tribunal emphasized the importance of the acquisition date in determining the cost inflation index and found in favor of the assessee based on the legal ownership timeline.

Issue 2: Interpretation of Section 48 of the Income Tax Act

The second issue raised was whether the Tribunal was justified in ignoring explanation (iii) of Section 48 of the Income Tax Act, which deals with the computation of capital gains. The Tribunal's decision was influenced by the interpretation of the term "held by the assessee" under Section 48. The Court referred to a previous case where it was established that the indexed cost of acquisition must be determined with reference to the first year in which the capital asset was held by the assessee. The Court clarified that the period for which the asset was held by the previous owner should also be included in determining the holding period for the assessee. This interpretation was crucial in computing long-term capital gains liability and the applicable cost inflation index for the indexed cost of acquisition.

Issue 3: Reliance on previous court decisions

The final issue centered around the Tribunal's reliance on a decision of the High Court of Bombay in a similar case involving the interpretation of the Income Tax Act. The Tribunal, in dismissing the revenue's appeal, followed the precedent set by the High Court decision. The counsel for the revenue failed to identify any distinguishing features in the current case that would warrant deviating from the established legal interpretation. The Court upheld the importance of consistency in legal interpretations and declined to entertain the appeal based on the binding precedent set by the previous court decision.

In conclusion, the High Court of Bombay upheld the Tribunal's decision based on the interpretation of the cost inflation index base year, the application of Section 48 of the Income Tax Act, and the reliance on previous court decisions. The Court emphasized the significance of legal precedents and consistency in interpreting tax laws, ultimately dismissing the appeal filed by the Revenue with no order as to costs.