2015 (5) TMI 1218 - AT - Income Tax

Computation of capital gain addition - indexed cost of acquisition - HELD THAT - It is not in dispute that the assessee obtained 75 cents of land from his mother by means of settlement deed dated 23.01.2004. The assessee also sold the land during the year under consideration and claimed capital gain by adopting the value as on 01.04.1981. AO disallowed the claim on the ground that the asset was owned only on 23.01.2004. Therefore, the value as on 23.01.2004 is to be adopted in respect of the property received by the assessee from his mother. We find that the Bombay High Court in the case of Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT had an occasion to consider an identical issue. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to compute the indexed cost of acquisition from 01.04.1981 in view. Appeal of the assessee is allowed.

Summary

Issues:
Computation of capital gain - Indexed cost of acquisition dispute.

Analysis:
The appeal concerned the computation of capital gain for the assessment year 2006-07, specifically focusing on the indexed cost of acquisition. The assessee received 75 cents of land through a settlement deed dated 23.01.2004, which was originally purchased by the assessee's mother in 1957. The assessee claimed indexation from 01.04.1981, while the Assessing Officer allowed indexation only from 23.01.2004 when the assessee became the owner. The dispute revolved around the interpretation of Explanation (iii) to Section 48 of the Income-tax Act, 1961, which determines the indexed cost of acquisition based on the first year the asset was held by the assessee.

The assessee relied on a judgment of the Bombay High Court in a similar case to argue that indexation should be computed from 01.04.1981, not from the date the asset was transferred to the assessee. The Departmental Representative contended that as per the Act, the indexed cost of acquisition should be from the year the asset was held by the assessee, which in this case was 23.01.2004. The key distinction was whether the cost of the asset should be adopted on the date of acquisition or for indexed cost of acquisition, impacting the calculation of capital gain.

Upon considering the written submission and arguments, the Tribunal referred to the Bombay High Court judgment, which clarified that the indexed cost of acquisition should be determined based on the year the capital asset was "held by the assessee." The Tribunal agreed with this interpretation and directed the Assessing Officer to compute the indexed cost of acquisition from 01.04.1981, in line with the Bombay High Court's ruling. Consequently, the appeal of the assessee was allowed, setting aside the orders of the lower authorities.

In conclusion, the Tribunal's decision emphasized the importance of determining the indexed cost of acquisition based on when the asset was "held by the assessee," as clarified by the Bombay High Court judgment, thereby resolving the dispute in favor of the assessee and highlighting the significance of accurate indexation in computing capital gains.