2014 (1) TMI 806 - HC - Income Tax

Benefit of indexation - inheritance - Cost Inflation Index of the year in which the said bungalow was constructed or of the year in which the said passage of ownership of bungalow were passed on her in the year after the demise of her husband - Held that - Following CIT vs. Manjula J Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT - The benefit of indexation shall be available from the year when previous owner first acquired it - If expression held by assessee interpreted differently to give benefit of indexation from the period when assessee acquired it, would defeat the purpose of statute - If the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee - Decided against Revenue.

Summary

Issues:
- Discrepancy in indexation cost calculation for Long Term Capital Gain.

Analysis:
The case involves a dispute over the indexation cost calculation for Long Term Capital Gain (LTCG) arising from the sale of a property. The Assessing Officer (AO) reworked the LTCG by decreasing the index cost based on the year the asset was first held by the assessee. The AO contended that the indexation benefit should be based on the year of first ownership by the assessee, not the previous owner. The assessee, however, argued that indexation should be allowed from the year of construction of the property, considering the co-ownership with her deceased husband. The Commissioner CIT (Appeals) ruled in favor of the assessee, allowing indexation from the year of construction. Subsequently, the revenue appealed to the Income Tax Appellate Tribunal (ITAT), citing precedents from Bombay High Court and Delhi High Court. The ITAT dismissed the appeal, upholding the indexation cost calculation by the CIT (Appeals).

In the High Court, the revenue challenged the ITAT's decision, questioning the adoption of indexed cost of acquisition from FY 1984-85 and the deletion of the addition made by the AO towards LTCG. The Court observed that the issue was settled by the Delhi High Court's decision in a similar case, which favored the assessee's position. Referring to previous judgments, including one by the Bombay High Court, the Court found no error in the ITAT's decision to adopt the indexed cost from the year of construction and not the year of first ownership by the assessee. Consequently, the Court dismissed the revenue's appeal, stating that no substantial question of law arose in the case.

Overall, the judgment resolves the dispute regarding the indexation cost calculation for LTCG, emphasizing the importance of considering the year of construction for determining the indexed cost of acquisition. The decision aligns with established legal precedents and upholds the assessee's position, leading to the dismissal of the revenue's appeal.