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2018 (8) TMI 645 - AT - Income TaxLong Term Capital Gains (LTCG) - Benefit of Indexation u/s 48 - indexed cost of acquisition with reference to the year in which the previous owner first held the asset - income earned on sale of share in land - transfer of a capital asset acquired by assessee under a gift or will - Held that - Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. - Decided against the revenue.
Issues Involved:
1. Indexation benefit for the period during which the property was held by the previous owner. 2. Correctness of the CIT(A)'s direction to grant indexation benefit from the first year in which the asset was held by the previous owner. Detailed Analysis: Issue 1: Indexation Benefit for the Period During Which the Property Was Held by the Previous Owner The primary issue in this appeal was whether the assessee should be granted the indexation benefit for the period during which the property was held by the previous owner. The Revenue contended that the indexation benefit should be restricted to the period from the first year in which the asset was held by the assessee, as per Explanation (iii) to Section 48 of the Income Tax Act. The Assessing Officer had denied the benefit of indexation for the period during which the property was held by the previous owner and allowed indexation only from the year in which the asset devolved on the assessee. This resulted in a significant difference in the calculated Long Term Capital Gain (LTCG). Issue 2: Correctness of the CIT(A)'s Direction to Grant Indexation Benefit from the First Year in Which the Asset Was Held by the Previous Owner The CIT(A) had allowed the assessee's appeal and directed the benefit of indexed cost of acquisition with reference to the year in which the previous owner first held the asset. The CIT(A)'s decision was based on the judgment of the jurisdictional High Court in the case of CIT vs. Manjula J. Shah, which held that for capital gains arising on the transfer of a capital asset acquired under a gift or will, the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. Tribunal's Findings: The Tribunal reviewed the submissions from both the assessee's Authorized Representative (AR) and the Departmental Representative (DR). The AR argued that the issue was covered in favor of the assessee by the decision in CIT vs. Manjula J. Shah. The Tribunal noted that the jurisdictional High Court had indeed addressed a similar question of law and had concluded that the indexed cost of acquisition must be computed with reference to the year in which the previous owner first held the asset. High Court's Judgment in CIT vs. Manjula J. Shah: The High Court's decision emphasized that for the purpose of computing capital gains under Section 48 of the Income Tax Act, the period for which the asset was held by the previous owner should be included in determining the indexed cost of acquisition. The court clarified that the object of the statute is to tax the gains arising on the transfer of a capital asset acquired under a gift or will, by including the period for which the asset was held by the previous owner. This ensures that the assessee is liable for long-term capital gains tax, and the indexed cost of acquisition should be determined accordingly. Conclusion: Based on the High Court's decision, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order. The Tribunal concluded that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset, aligning with the legislative intent and the High Court's interpretation. Final Order: The appeal of the Revenue was dismissed, and the Tribunal's order was pronounced in the open court on 25.07.2018.
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