2014 (5) TMI 430 - AT - Income Tax

Confirmation of the amount as LTCG Capital receipts in lieu of inheritance FMV as on 01.04.1981 - Held that - The AO has taken a firm stand that what the assessee has received is towards surrender of her right in the property - If the consideration received is towards surrender of inherited rights in property, then the same has to be taxed within the light of the provisions of Section 45 read with Sections 47 and 48 of the Act - the property is inherited the cost of acquisition of the property has to be treated as per the fair market value as on 01.04.1981- Material on record shows that the assessee has also filed a valuation report to substantiate her claim of fair market value as on 01.04.1981 - The AO has completely ignored this fact holding that the cost of acquisition has to be taken at nil, which is not a correct proposition of law - the transaction involves capital gains tax liability, it has to be computed as per the provisions of law thus, the matter is required to be remitted back to the AO for determination of the cost of acquisition of the property as on 01.04.1981 by referring the matter to the valuation cell or in alternative accept the valuation report of the assessee and re-determine the Long term capital gains after giving a reasonable and sufficient opportunity of being heard to the assessee Decided in favour of Assessee.

Summary

Issues:
- Appeal against CIT(A) orders for A.Y 2008-09 by two different assessees involving common issues.

Analysis:
1. Long Term Capital Gain and Inheritance:
- The AO observed Rs.85 lacs claimed as inheritance was actually compensation for surrendering property rights.
- AO concluded the amount was taxable as capital gains, adding it as Long term capital gain.
- Assessee argued the amount was received under grandfather's will, not surrender.
- CIT(A) upheld AO's decision, stating the assessee failed to prove inheritance.
- Tribunal found the property was inherited, directing AO to determine the cost of acquisition as on 01.04.1981.

2. Cost of Acquisition and Capital Gains Computation:
- Assessee claimed proportionate Cost of Acquisition, but AO denied considering it a surrender.
- CIT(A) agreed with AO, stating no acquisition cost since it was a surrender.
- Tribunal disagreed, holding the transaction involved capital gains tax liability.
- Directed AO to determine the cost of acquisition based on fair market value as on 01.04.1981 or accept the valuation report provided by the assessee.

3. Legal Interpretation and Decision:
- Tribunal emphasized that if the consideration was for surrendering inherited rights, it falls under capital gains tax.
- Rejected AO's stance on nil cost of acquisition, directing a proper determination based on valuation.
- Held that the transaction's capital gains tax liability necessitates computation as per law.
- Declared the appeals allowed for statistical purposes, as the issues were resolved in favor of the assessees.

This detailed analysis highlights the key legal arguments, interpretations, and decisions made by the Tribunal regarding the Long Term Capital Gain, Inheritance, Cost of Acquisition, and Capital Gains Computation issues raised in the appeals against the CIT(A) orders for the assessment year 2008-09.