Indexation for inherited property follows the previous owner's holding period, with factual verification needed for capital gains computation.

For capital assets acquired by succession or inheritance, the deemed cost of acquisition is the previous owner's cost, and indexation under section 48 is linked to the period from which the asset is first held, or 1 April 1981 where relevant. The note states that the indexed cost could not be limited to a later year merely because the assessee's share was subsequently enhanced. It also records that the exact inherited share, dates of devolution and valuation material required fresh verification, so the computation of long-term capital gains depended on a remand for de novo factual examination.

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Issues: (i) Whether, in computing long-term capital gain on property acquired by succession or inheritance, the indexed cost of acquisition had to be taken with reference to 1 April 1981 or the later date on which the assessee's share was enhanced. (ii) Whether the factual basis for the cost of acquisition and the valuation adopted required fresh verification in light of the material on record.

Issue (i): Whether, in computing long-term capital gain on property acquired by succession or inheritance, the indexed cost of acquisition had to be taken with reference to 1 April 1981 or the later date on which the assessee's share was enhanced.

Analysis: For property coming by succession or inheritance, the cost of acquisition is deemed to be the cost at which the previous owner acquired the asset. The indexed cost under section 48 is linked to the year in which the asset was first held by the assessee or 1 April 1981, whichever is later. On the facts accepted for the purpose of the appeal, the property was inherited and the relevant base year could not be restricted to the later year merely because a later event increased the share holding.

Conclusion: The indexed cost of acquisition was required to be considered from 1 April 1981, not from financial year 2003-04, subject to verification of the underlying facts.

Issue (ii): Whether the factual basis for the cost of acquisition and the valuation adopted required fresh verification in light of the material on record.

Analysis: The material regarding the exact inherited share, the dates of devolution, and the valuation report was not fully examined at the assessment stage. Since the correct working of indexed cost depended on those factual particulars, further inquiry by the assessing authority was necessary before final computation of capital gains.

Conclusion: The matter required remand for de novo adjudication and verification of facts.

Final Conclusion: The assessee obtained relief on the substantive legal question, but the quantum issue was sent back for fresh examination, resulting in disposal of the appeal for statistical purposes.

Ratio Decidendi: Where capital assets are acquired by succession or inheritance, indexation is to be computed with reference to the year the previous owner first held the asset or 1 April 1981, whichever is later, and the correct computation must follow the verified factual matrix.

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