2016 (12) TMI 457 - AT - Income Tax

Benefits of indexation while working out capital gains - claim not allowed from the year in which it inherited the property - asset deemed to have held - Held that - For the purpose of indexation, the period of holding of the donor has also to be considered. We are therefore, of the opinion that assessee was eligible for the claim. See Commissioner of Income-tax Versus Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT - Decided in favour of assessee

Summary

Issues:
Claim of benefits of indexation while calculating capital gains.

Analysis:
The appellant, in this case, contested the disallowance of indexation benefits while computing capital gains from the year of inheriting a property. The property was sold by the appellant and family members, and the appellant inherited it through a will. The Assessing Officer disagreed with the cost inflation index used by the appellant, resulting in additional long-term capital gains. The Commissioner of Income Tax (Appeals) upheld this decision. The appellant argued that the asset should be deemed to have been held from the date the donor acquired it, entitling them to indexation benefits. The Departmental Representative supported the lower authorities' decisions.

The Tribunal referred to the Hon'ble Bombay High Court's judgment in the case of CIT vs. Manjula J. Shah, emphasizing the interpretation of "asset held by the assessee" in the context of indexation benefits. The High Court clarified that the period of holding by the previous owner should be included when determining the period of holding by the assessee in cases of gifts or wills. This inclusion is crucial for calculating indexed cost of acquisition and determining long-term capital gains tax liability. The Tribunal agreed with this interpretation, allowing the appellant's claim for indexation benefits. The appeal was consequently allowed, and the order was pronounced in favor of the appellant.

In conclusion, the Tribunal's decision favored the appellant's claim for indexation benefits based on the interpretation provided by the Hon'ble Bombay High Court. The judgment emphasized the importance of considering the period of holding by the previous owner in cases of inherited assets for calculating indexed cost of acquisition and determining long-term capital gains tax liability.