2012 (2) TMI 192 - AT - Income Tax

Inherited Property Cost Basis: Date for Capital Gains, Cost Inflation Index

The Appellate Tribunal upheld the deletion of the addition on account of long term capital gains. It determined that the cost of acquisition for inherited ... Long-term Capital gains – determination of date of acquisition – property acquired through inheritance - acquired by previous owner prior to 1-4-1981 – assessee share in property determined by virtue of family settlement dated 11-9-2000 - Revenue contending indexed cost of acquisition to be as per F.Y. 2000-01 & not 1981-82 – Held that:- Assessee succeeded to this property and in such eventuality the word “hold” is to be interpreted keeping in mind the judgment in the case of CIT Vs. Manjula J. Shah holding that benefit of indexation shall be available from the year when previous owner first acquired it – Decided against the Revenue. Issues: Appeal against deletion of addition on account of long term capital gains due to family settlement determining the share in inherited property.Analysis:Issue 1: Long term capital gains computationThe appellant, an assessee, succeeded to a property after the demise of the mother in 1986, which was acquired by the deceased mother before 1-4-1981. Upon selling the property during the relevant assessment year, the appellant offered long term capital gains. The Assessing Officer (AO) in the reassessment held that the indexation of the cost of acquisition from 1-4-1981 was not applicable as the appellant became the owner due to a family settlement on 11-9-2000. The capital gains were computed based on this determination.Issue 2: CIT(A)'s decisionIn the first appeal, the Commissioner of Income Tax (Appeals) accepted the assessee's claim, emphasizing that the Income Tax Act deems the cost of acquisition in case of inheritance to be the cost at which the property was acquired by the previous owner, without any distinction based on the year of inheritance. The CIT(A) referred to various court judgments to support this interpretation, including the Delhi High Court's decision in CIT v. N.N. Mohan & Sons and the Madras High Court's ruling in CIT v. Shanti Chandran. The CIT(A) concluded that the cost of acquisition for the property sold by the appellant in the relevant assessment year should be calculated with reference to the cost inflation index of 1-4-1981, not the date of the mother's death or the family settlement.Issue 3: Appellate Tribunal's decisionThe Appellate Tribunal considered the arguments presented by both the Revenue and the assessee. Relying on the judgment of the Hon'ble Bombay High Court in CIT Vs. Manjula J. Shah, the Tribunal upheld the CIT(A)'s order. It emphasized that when an assessee succeeds to a property through any mode specified under section 49(1) of the Income Tax Act, the capital gains liability should be computed as if the asset was held by the assessee from the date it was held by the previous owner. The Tribunal found merit in the counsel's contention and dismissed the Revenue's appeal, affirming the order of the CIT(A).In conclusion, the Appellate Tribunal upheld the deletion of the addition on account of long term capital gains based on the interpretation of the cost of acquisition in cases of inheritance as per relevant legal provisions and judicial precedents.