2017 (8) TMI 524 - AT - Income Tax

Re-computation of capital gains - inheritance of property - adopting year for the indexed cost of acquisition of the capital asset - reference to the year in which the previous owner first held the assessee and not the first year in which the asset was held by the assessee - Held that - This issue is squarely covered in favor of the appellant by the decision of Bombay High Court in the case of Mainjula. J Shah (2011 (10) TMI 406 - BOMBAY HIGH COURT) held that the benefit of indexation shall be available from the year when previous owner first acquired it. If expression held by assessee interpreted differently to give benefit of indexation from the period when assessee acquired it, would defeat the purpose of statute. If the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. AO is directed to re-compute the capital gains by adopting year for the indexed cost of acquisition of the capital asset in question with reference to the year in which the previous owner first held the asset. In other words, in the formula for calculation of indexed cot of acquisition of the property, the denominator has to be taken as 100 i.e. cost inflation index of the year 1981-82 as against 480 considered by the Assessing Officer. Appeal filed by the Revenue is dismissed.

Issues involved:
Appeal by Revenue against CIT(A) order for A.Y. 2011-12 regarding indexed cost of acquisition determination.

Analysis:
The Revenue raised the issue of indexed cost of acquisition in the appeal, challenging the CIT(A)'s direction to re-compute capital gains based on the year the previous owner first held the asset, not when the assessee acquired it. The assessee sold properties inherited after the previous owner's demise, with the AO questioning the indexed cost based on the year of inheritance. The CIT(A) directed to compute indexed cost from the year the previous owner first held the asset, citing relevant legal provisions and court decisions. The Bombay High Court's rulings in similar cases supported the CIT(A)'s decision, emphasizing the year the previous owner held the asset for indexed cost calculation, not the year of succession. The AO's objection based on the year of succession was dismissed, confirming the CIT(A)'s order.

The learned D.R. supported the AO's order but failed to provide any contradictory decision from the High Court. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The judgment reaffirmed the importance of considering the year the previous owner held the asset for computing indexed cost, aligning with legal provisions and court precedents. The decision highlighted the significance of the year of acquisition by the previous owner in determining indexed cost of acquisition, emphasizing adherence to established legal principles and court rulings. The judgment clarified the correct approach for computing indexed cost in cases of inheritance or succession, providing a clear directive for future assessments based on legal interpretations and precedents.

In conclusion, the Tribunal's decision upheld the CIT(A)'s order, emphasizing the relevance of the year the previous owner held the asset for calculating indexed cost of acquisition. The judgment provided a detailed analysis based on legal provisions and court decisions, ensuring consistency in determining capital gains in cases of inheritance or succession. The ruling reaffirmed the importance of following established legal principles and court precedents in resolving disputes related to indexed cost calculations, ensuring fair and accurate assessments in line with the law.

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