Indexation for family-arrangement property follows the previous owner's acquisition year when computing long-term capital gains.

For long-term capital gains on property received under a family arrangement, the cost of acquisition was required to be linked to the previous owner's acquisition year for indexation. Applying section 49(1)(iii)(a) of the Income-tax Act, the appellate authority held that the assessee could use the cost inflation index from the year the family members originally acquired the property in 1985, because title was derived from the previous owner through the arrangement. The Revenue's challenge therefore failed.

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Issues: Whether, for computing long-term capital gains on property acquired under a family arrangement, the cost inflation index had to be taken with reference to the year in which the previous owner acquired the property.

Analysis: The property had originally been purchased by the family members in 1985. Under the family arrangement, the assessee became entitled to the property from an earlier date in exchange for surrendering her claim to reside in another property. The appellate authority applied section 49(1)(iii)(a) of the Income-tax Act, 1961 and held that the cost of acquisition had to be linked to the previous owner's acquisition year for indexation purposes while computing capital gains.

Conclusion: The adoption of the cost inflation index relevant to the year in which the previous owner purchased the property was correct, and the Revenue's challenge failed.

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