2013 (5) TMI 102 - AT - Income Tax

Capital gain benefit of indexation - asset transferred as gift - Benefit of deduction claimed on account of indexed cost of acquisition while computing the long term capital gain. - According to the AO, the assessee had received the property after the death of her father in the financial year 2001-02 and since she was possessing/owning the said property only from that year, the indexation was to be allowed only from the financial year 2001-02. Held that - Respectfully following the decision of Bombay High Court DCIT vs. Manjula J. Shah reported in 2011 (10) TMI 406 (Mumbai) we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss the appeal filed by the Revenue.

Summary

Issues involved:
1. Claim for deduction on account of indexed cost of acquisition based on holding period of the previous owner.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) regarding the deduction claimed by the assessee for indexed cost of acquisition based on the holding period of the previous owner of the property. The primary contention raised by the Revenue was that the indexation should start from the financial year in which the assessee became the owner of the property, i.e., 2001-02, after the death of her father. The Revenue argued that Explanation (iii) to section 48 mandates adopting the Cost Inflation Index from the first year the asset was held by the assessee. However, the CIT(A) allowed the claim of the assessee for indexed cost of acquisition, considering the financial year 1981-82 as the base year, relying on the decision of the Mumbai Special Bench of ITAT in a similar case.

The assessee, an individual, received a share in the property after the death of her father in 2002, and the property was later sold in 2008. The Revenue contended that indexation should start from the year of the assessee's ownership, i.e., 2001-02. On the other hand, the CIT(A) relied on the Special Bench decision, which held that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. During the hearing, both sides agreed that the issue was settled in favor of the assessee by a decision of the Bombay High Court, affirming the Special Bench's ruling. The High Court upheld that for assets acquired through gift or will, the indexed cost of acquisition should be determined based on the year the previous owner first held the asset, not the year the current owner acquired it. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the deduction for indexed cost of acquisition based on the holding period of the previous owner of the property. The judgment clarified that for assets acquired through gift or will, the indexation should start from the year the previous owner first held the asset, in accordance with the relevant legal provisions and judicial precedents.