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2019 (1) TMI 154 - HC - Income TaxCapital gain for sale of property acquired under the will - cost of acquisition of asset calculated on the basis of the cost of acquisition by previous owner - Computation of indexed cost of acquisition on transfer of capital asset- Held that - In the case on hand, the assessee acquired the property through the will, which was probated on October 30, 2006. The will was executed by the husband of the assessee, who died on February 22, 2006. The husband of the assessee had acquired the property prior to April 1, 1981, as such, the assessee had opted April 1, 1981 for arriving at the cost of acquisition. This issue is answered by this court in the case of CIT v. Smt. Daisy Devaiah 2014 (11) TMI 944 - KARNATAKA HIGH COURT stating though in the definition of indexed cost of acquisition , the word used are, in which the asset was held by the assessee a harmonious reading of Sections 48 and 49 makes it clear that, for the purpose of Indexed Cost of Acquisition , it has to be understood as the first year in which the previous owner held the said property - Otherwise, if the date of inheritance is taken into consideration, then the cost of acquisition of the asset on that date corresponding to the market value is to be taken into consideration - Otherwise, take the cost of acquisition on the day the previous owner acquired it and apply the Indexed Cost of Acquisition and then calculate the capital gains and the tax payable. - decided in favour of assessee. Entitlement for benefit u/s 54F - possession of the flats is not taken by the assessee within the period of three years and as such, the assessee is not entitled for the benefit under section 54F - Held that - If one has invested the amount received on sale of capital asset either in purchasing a residential house or in construction of a residential house, even though the transactions are not complete in all respects, the assessee would be entitled to the benefit under section 54F of the Act. See Sambandam Udaykumar case 2012 (3) TMI 80 - KARNATAKA HIGH COURT - decided in favour of assessee.
Issues Involved:
1. Eligibility for indexation of cost of acquisition of an asset received by way of will. 2. Computation of indexed cost of acquisition with reference to the year the previous owner held the asset. 3. Interpretation of Explanation (iii) of section 48 regarding indexed cost of acquisition. 4. Applicability of cost inflation index for the year 2006 in determining the cost of acquisition. 5. Eligibility for deduction under section 54F of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Eligibility for Indexation of Cost of Acquisition of an Asset Received by Way of Will The appellants-Revenue questioned whether the assessee is eligible for indexation of cost of acquisition for the period it was held by the testator. The court referred to sections 48(iii), 49(1), and 2(42A) of the Income-tax Act, 1961, and the relevant provisions. The court upheld that the cost of acquisition should be based on the cost for which the previous owner acquired the asset, as stated in section 49(1) of the Act. Issue 2: Computation of Indexed Cost of Acquisition with Reference to the Year the Previous Owner Held the Asset The Tribunal held that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. The court cited the case of CIT v. Smt. Daisy Devaiah, where it was held that the cost of acquisition should be calculated based on the indexed cost of acquisition of the previous owner. The court affirmed this interpretation, emphasizing that for the purpose of indexed cost of acquisition, it should be understood as the first year in which the previous owner held the property. Issue 3: Interpretation of Explanation (iii) of Section 48 Regarding Indexed Cost of Acquisition The Revenue argued that Explanation (iii) of section 48 defines the indexed cost of acquisition as the proportionate amount based on the cost inflation index for the year in which the asset was transferred. The court clarified that a harmonious reading of sections 48 and 49 indicates that the indexed cost of acquisition should be computed from the year the previous owner acquired the asset, not the year the assessee inherited it. Issue 4: Applicability of Cost Inflation Index for the Year 2006 in Determining the Cost of Acquisition The Revenue contended that the cost inflation index for the year 2006 should apply since the assessee acquired the property in 2006. The court rejected this argument, reiterating that the cost of acquisition should be based on the cost for which the previous owner acquired the asset, as supported by section 49(1) of the Act and the decision in CIT v. Smt. Daisy Devaiah. Issue 5: Eligibility for Deduction under Section 54F of the Income-tax Act, 1961 The Revenue argued that the assessee did not satisfy the conditions under section 54F since the flats were handed over after the stipulated period. The court referred to the decision in CIT v. Sambandam Udaykumar, which held that the essence of section 54F is whether the assessee invested the capital gains in a residential house within the specified period, regardless of the completion or occupation status of the property. The court found that the assessee had invested the amount within the specified period and executed the sale deeds, thus entitling her to the benefit under section 54F. Conclusion The court dismissed the appeal, finding no error in the Tribunal's order. The judgments confirmed that the indexed cost of acquisition should be computed from the year the previous owner held the asset and that the assessee is entitled to the benefits under section 54F, provided the investment is made within the specified period, regardless of the completion status of the residential property.
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