2014 (4) TMI 23 - AT - Income Tax

Determination of year of acquisition of the capital asset Capital asset transferred Determination of Indexed cost of acquisition - Whether the right to receive the flats on the fourth and fifth floor of the building has accrued to the assessees by virtue of the operation of the agreement dated 26.09.1986 or by the modification agreement dated 23.07.2003 Held that - As per the original agreement, the assessees are entitled for the second/third floor flats and the subsequent modification allowing the assessees to receive the flats on fourth/fifth floor instead of second/third floor flats will only substitute the assessee s existing right to receive the constructed property - the assessees right to receive the fourth/fifth floor flats have been accrued to them on 26.09.1986 itself i.e., the original date of agreement - the authorities below are not justified in adopting the indexation cost from the year 2003 on the ground that transfer has taken place in the said year - thus, both the assessees are entitled for claiming the indexed cost of acquisition from the year 1986 onwards the order of the CIT(A) set aside Decided in favour of Assessee.

Summary

Issues:
Determining the year of acquisition of the capital asset transferred by the assessees for the Assessment Year 2007-08.

Analysis:
The appeals involved a common issue of deciding the year of acquisition of a capital asset transferred by the assessees to determine the indexed cost of acquisition. The assessees' father purchased a property in 1962, and after his death in 1980, the assessees, along with their mother, inherited the property. They entered into an agreement to sell their shares in the property in 1986. Subsequently, a modification agreement in 2003 changed the allocation of flats to the assessees. The dispute arose regarding the year from which the assessees' right to the property should be considered for calculating capital gains. The Assessing Officer (AO) considered the rights to the property to have accrued in 2003, while the assessees claimed it should be from 1986.

Upon review, the Tribunal observed that the assessees were entitled to specific flats as per the original agreement, and the modification agreement merely changed the allocation of floors. The Tribunal determined that the assessees' rights to the fourth and fifth-floor flats had accrued in 1986 itself, not in 2003 as contended by the AO. Therefore, the Tribunal allowed the assessees to claim the indexed cost of acquisition from 1986 onwards. The Tribunal also quashed the order passed by the Commissioner of Income Tax under section 263 regarding one of the assessees, as it was based on an incorrect determination of the year of acquisition.

In conclusion, the Tribunal allowed the appeals of the assessees, stating that they were entitled to claim the indexed cost of acquisition from 1986 onwards, rejecting the AO's assessment of 2003 as the year of acquisition. The judgment clarified that the modification agreement did not change the assessees' rights but only substituted the floors allocated to them, confirming their entitlement to the earlier year for calculating capital gains.