2020 (11) TMI 207 - AT - Income Tax

Rectification of mistake u/s 154 - exemption u/s. 54 - benefit of indexation in a case where property is acquired by way of gift - Tribunal suffers from a mistake apparent on the face of record inasmuch it proceeded on the basis that consequent to allowing deduction u/s. 54, there would be no long term capital gain that would remain for taxation - Not granting indexation benefit from the year in which property was acquired by the previous owner as the assessee got the property way of gift - HELD THAT - Issue of allowing benefit of indexation property which was subject matter of transfer was purchased by the father and mother of assessee under a Sale Deed dated 15.9.1980. The property was given by way of gift by the assessee on 15.3.2006 Plea of assessee that since property was acquired in the year 1980 and since as per the provisions of Explanation (1) to section 2(42A) and the provisions of section 49(1) of the Act, if the property is acquired by way of gift, then the period of holding as well as the date of acquisition of the property should be reckoned from the date on which the predecessor of the assessee acquired the property. These submissions are contained in of the CIT(A) s order. Though the submissions have been extracted, the CIT(Appeals) has, however, not considered those submissions and has not rendered any finding on the above issue. The issue of allowing the benefit of indexation in a case where property is acquired by way of gift has been considered and decided in the case of CIT v. Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT as held that legislature by introducing deeming fiction seeks to tax gains arising on transfer of a capital asset acquired under a gift or will and, capital gain under section 48 has to be computed by applying deemed fiction and that fiction contained in Explanation 1(i)(b) to section 2(42A) has to be applied in determining indexed cost of acquisition under section 48 of Act also - while computing capital gains arising on transfer of a capital asset acquired by assessee under a gift or will, indexed cost of acquisition has to be computed with reference to year in which previous owner first held asset and not year in which assessee became owner of asset. Hon ble High Court of Karnataka in the case of CIT v. Smt. Asha Machaiah 2014 (10) TMI 101 - HIGH COURT OF KARNATAKA applied the same analogy to acquisition of property by way of inheritance holding that when an asset is acquired by way of inheritance, cost of acquisition of asset should be calculated on basis of cost of acquisition to previous owner and said cost of acquisition of previous owner has to be calculated on basis of indexed cost of acquisition as provided in Explanation (3) to section 48. Reasoning applicable when property is acquired by way of inheritance and when the same is acquired by way of gift, cannot be different. We are, therefore, of the view that the assessee should be allowed the benefit of indexation from AY 198-81. We hold and direct accordingly and allow the relevant grounds of appeal.

Summary

Issues:
Computation of long term capital gain - Denial of exemption u/s. 54 of the Act, adoption of guideline value u/s. 50C of the Act, and indexation benefit.

Comprehensive Analysis:

1. Denial of Exemption u/s. 54 of the Act:
The Tribunal initially allowed the benefit of exemption u/s. 54 of the Act in an appeal related to the computation of long term capital gain for the assessment year 2013-14. This decision led to the conclusion that there would be no long term capital gain remaining for taxation, making the other issues of adopting guideline value u/s. 50C and granting indexation benefit irrelevant and not adjudicated.

2. Adoption of Guideline Value u/s. 50C:
Due to the allowance of deduction u/s. 54, the Tribunal did not delve into the issue of adopting guideline value u/s. 50C as there was no long term capital gain left for taxation. However, a subsequent Miscellaneous Petition highlighted that there would still be long term capital gain chargeable to tax post the exemption u/s. 54, necessitating a reexamination of the issue.

3. Indexation Benefit:
The critical issue revolved around the period for which indexation benefit should be granted to the assessee while computing long term capital gain. The property in question was originally purchased by the assessee's father and mother in 1980 and later gifted to the assessee in 2006. The Assessing Officer allowed indexation benefit only from the assessment year 2005-06, based on the property's gifting date. However, the assessee argued that the indexation should be applicable from the year of acquisition by the previous owner, as per specific provisions of the Income Tax Act.

4. Legal Precedents and Decision:
The Tribunal referred to the decision of the Hon'ble Bombay High Court in CIT v. Manjula J. Shah, which emphasized that indexed cost of acquisition should be determined based on the year the previous owner first held the asset, not the year the current assessee became the owner. Additionally, the High Court of Karnataka in CIT v. Smt. Asha Machaiah applied a similar principle to property acquired through inheritance. Consequently, the Tribunal concluded that the benefit of indexation should be granted from the assessment year 1980-81, aligning with the year of acquisition by the previous owner, and allowed the relevant grounds of appeal in favor of the assessee.

In conclusion, the Tribunal's detailed analysis and alignment with legal precedents ensured a fair and accurate computation of long term capital gain, particularly regarding the indexation benefit issue, ultimately ruling in favor of the assessee.