Capital gains on inherited land must reflect shared sale proceeds, with pre-1981 cost determined by fair market value.

Inherited agricultural land sold by co-heirs raises capital gains issues where the sale proceeds are received in the respective accounts of the widow and sons, because taxability should follow the actual sharing of consideration and be examined in the hands of the legal heirs in equal shares. For inherited property acquired before 01.04.1981, the cost of acquisition must be determined under the applicable statutory scheme by reference to fair market value on that date, rather than by applying nil cost. Claims relating to indexation and allied deductions also require reconsideration on proper computation.

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Issues: (i) Whether the capital gain from sale of inherited agricultural land was assessable only in the hands of the widow or had to be apportioned among the legal heirs who inherited the land and shared the sale consideration. (ii) Whether the cost of acquisition of the inherited land had to be determined by reference to its fair market value as on 01.04.1981 and the related claims required fresh consideration.

Issue (i): Whether the capital gain from sale of inherited agricultural land was assessable only in the hands of the widow or had to be apportioned among the legal heirs who inherited the land and shared the sale consideration.

Analysis: The land was inherited by the family members, and the sale consideration was found to have been received and reflected in the respective bank accounts of the widow and the sons. The relinquishment deed was treated as a family arrangement executed to avoid future disputes and not as a basis to fasten the entire tax incidence on only one person. Since the sale proceeds were shared by the co-heirs, the related capital gain and deposits required assessment in the hands of the legal heirs in equal shares.

Conclusion: The issue was decided in favour of the assessees and against assessment of the entire capital gain only in the hands of the widow.

Issue (ii): Whether the cost of acquisition of the inherited land had to be determined by reference to its fair market value as on 01.04.1981 and the related claims required fresh consideration.

Analysis: The Assessing Officer had applied nil cost without examining the statutory scheme applicable to inherited property and without determining the fair market value as on 01.04.1981, though the ancestral owner had acquired the land before that date. The Tribunal held that the cost of acquisition had to be computed in accordance with the relevant provisions and that claims such as indexation and other deductions also required reconsideration by the Assessing Officer.

Conclusion: The issue was decided in favour of the assessees, and the matter was restored for fresh adjudication.

Final Conclusion: The appeals were not finally decided on merits and were remitted for de novo consideration by the Assessing Officer on apportionment of capital gain, cost of acquisition, and allied claims.

Ratio Decidendi: Where inherited property is sold and the consideration is shown to have been shared by the legal heirs, capital gains must be examined in the hands of the respective co-heirs, and the cost of acquisition of pre-1981 inherited property must be determined by reference to fair market value as on 01.04.1981.

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