Co-owned inherited property sale: capital gains taxed by actual share, with protective assessment for other heirs deleted.

In a sale of inherited co-owned property, capital gains are taxable separately in each co-owner's hands in proportion to the actual share transferred, so protective assessment in one heir's hands for the other heirs' shares had no legal basis and was deleted. The assessee was nevertheless chargeable on transfer of her own one-fourth share because the registered sale deed completed the transfer for tax purposes, but the gain had to be recomputed on the correct ownership fraction and proper computation basis. The result was partial relief, with the matter confined to recomputation of capital gains.

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Issues: (i) whether the assessee could be assessed on a protective basis for the capital gains attributable to the shares of other co-owners; (ii) whether the assessee was liable to capital gains tax on transfer of her share in the property and, if so, how the capital gain was to be computed.

Issue (i): whether the assessee could be assessed on a protective basis for the capital gains attributable to the shares of other co-owners.

Analysis: The property belonged to the deceased original owner and, on his death, devolved upon the assessee and her three siblings as legal heirs. The sale deed showed that each heir held and transferred only his or her own share, and the capital gain attributable to each co-owner was independently taxable in that co-owner's hands. Protective assessment in the hands of the assessee for the shares of the other heirs had no basis once the respective co-owners were liable in their individual capacity.

Conclusion: The protective addition made in the assessee's hands was rightly deleted, and the Revenue's challenge failed.

Issue (ii): whether the assessee was liable to capital gains tax on transfer of her share in the property and, if so, how the capital gain was to be computed.

Analysis: The transfer was complete only on execution and registration of the final sale deed, and the earlier agreement to sell did not establish a completed transfer for tax purposes on the facts shown. The assessee and the other legal heirs were the transferors in the registered deed, and the amount earlier received by the predecessor was adjusted in the transaction. Therefore, it could not be said that no consideration flowed to the assessee or that the transaction was outside the capital gains regime. However, the assessee's share was only one-fourth, not one-third, and the capital gain had to be recomputed accordingly. The computation adopted in the co-owner's case was treated as the correct basis for recomputation.

Conclusion: The assessee was chargeable to capital gains tax on her one-fourth share, but the assessment was directed to be recomputed on the correct computation basis; the assessee obtained partial relief.

Final Conclusion: The protective addition was deleted, the assessee's taxable share was confined to her one-fourth interest, and the matter was remitted only for recomputation of capital gains in accordance with the proper quantification.

Ratio Decidendi: In a co-owned inherited property sale, capital gains are taxable separately in the hands of each co-owner in proportion to their respective share, protective assessment in one co-owner's hands is unwarranted for the others' shares, and capital gains must be computed on the basis of the actual legal transfer and the correct share of ownership.

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