2018 (1) TMI 1307 - HC - Income Tax

Computation of capital gain - Tribunal accepting the cost Inflation Index taken by the assessee of the year in which the father of the assessee became the owner - property in question was transferred in favour of assessee after the death of his father through inheritance - Cost with reference to certain modes of acquisition - Held that - The provisions of subsection (1) of section 49 of the Act would be squarely attracted and the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. The material on record reveals that the property in question was acquired by the father of the assessee in the year 1945. In view of the provisions of subsection (1) of section 49 of the Act read with the Explanation thereto, since the capital asset has become the property of the assessee under a will, the cost of acquisition is deemed to be the cost for which the previous owner, namely the assessee s father, acquired it. The record of the case shows that the property was acquired by the father of the assessee in the year 1945. Therefore, in view of the provisions of clause (iii) to the Explanation to section 48 of the Act, the indexed cost of acquisition is required to be computed by considering the cost of acquisition for the year beginning on the 1st day of April, 1981. In the light of the above discussion, it is amply clear that the view adopted by the Tribunal is in consonance with the above statutory provisions.

Summary

Issues:
Challenge to order under section 260A of the Income Tax Act regarding cost inflation index for property acquired through inheritance.

Analysis:
1. The appellant revenue challenged the order dated 21.11.2016 by the Income Tax Appellate Tribunal regarding the acceptance of the cost inflation index by the assessee for a property inherited after the death of the father. The substantial question of law raised was whether the cost of acquisition should be based on the year the father acquired the property or the year of inheritance.

2. The assessment year in question was 2006-07, and the relevant accounting period was 01.04.2005 to 31.03.2006.

3. The assessee inherited a property through a will in 2004 and sold it in 2006. The Assessing Officer recalculated the cost of acquisition based on the year of inheritance, resulting in additional tax liability.

4. The Commissioner (Appeals) partly allowed the appeal, stating that the fair market value of the property as of 01.04.1981 should be considered as the cost of acquisition, as per section 55(2)(b)(ii) of the Act.

5. The Tribunal, following the decision of the Bombay High Court, held that the cost of acquisition for inherited property should be based on the cost for which the previous owner acquired it.

6. The appellant challenged the Tribunal's decision, arguing against the reasoning adopted by the Assessing Officer.

7. The facts were not disputed, with the property being inherited through a will, and the indexed cost of acquisition was based on the year 1981 by the assessee for computing long term capital gain.

8. Section 49 of the Act deals with the cost of acquisition for assets acquired through inheritance, succession, or devolution.

9. Subsection (1) of section 49 specifies that the cost of acquisition for inherited assets shall be deemed to be the cost for which the previous owner acquired it.

10. In this case, the previous owner was the assessee's father, and the property was acquired by him in 1945.

11. Section 48 of the Act provides for the computation of capital gains, with the indexed cost of acquisition calculated based on the year the asset was first held by the assessee or from the year beginning on 01.04.1981.

12. The Tribunal's decision aligned with statutory provisions, considering the cost of acquisition based on the year 1981, and the appeal was summarily dismissed for lack of any legal infirmity.