Indexed cost on gifted assets follows the previous owner's holding period, not the donee's acquisition date.

For a capital asset acquired by gift, indexed cost of acquisition is computed with reference to the year in which the previous owner first held the asset, not the year in which the assessee received the gift. Section 49(1) deems the assessee to take the previous owner's cost, and that deeming fiction must be given full effect when applying section 48 Explanation (iii). The indexation base therefore follows the previous owner's holding period, so the Revenue's contrary position is rejected.

---

---

Issues: Whether, for computing indexed cost of acquisition of a capital asset acquired by gift, the first year for indexation is the year in which the previous owner first held the asset or the year in which the assessee became owner.

Analysis: Under section 48 Explanation (iii), indexed cost of acquisition is linked to the first year in which the asset was held. Read with section 49(1), where the asset is acquired under a gift, the cost of acquisition in the assessee's hands is deemed to be the cost for which the previous owner acquired the asset. Giving full effect to that deeming fiction requires the indexation base to be traced to the previous owner's holding period, not the date on which the assessee received the gift.

Conclusion: The relevant year for indexation is the year in which the previous owner first held the asset, and the Revenue's challenge fails.

Ratio Decidendi: Where section 49(1) deems the assessee to have acquired the previous owner's cost, section 48 Explanation (iii) must be applied with reference to the previous owner's holding period for determining indexed cost of acquisition.

---