2019 (1) TMI 154 - HC - Income Tax

Court affirms cost basis for asset acquisition per Income-tax Act, 1961. Benefits under section 54F upheld.

PRINCIPAL COMMISSIONER OF INCOME-TAX AND ANOTHER Versus MRS. VANAJA MATTHEN

PRINCIPAL COMMISSIONER OF INCOME-TAX AND ANOTHER Versus MRS. VANAJA MATTHEN - TMI Issues Involved:1. Eligibility for indexation of cost of acquisition of an asset received by way of will.2. Computation of indexed cost of acquisition with reference to the year the previous owner held the asset.3. Interpretation of Explanation (iii) of section 48 regarding indexed cost of acquisition.4. Applicability of cost inflation index for the year 2006 in determining the cost of acquisition.5. Eligibility for deduction under section 54F of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Eligibility for Indexation of Cost of Acquisition of an Asset Received by Way of WillThe appellants-Revenue questioned whether the assessee is eligible for indexation of cost of acquisition for the period it was held by the testator. The court referred to sections 48(iii), 49(1), and 2(42A) of the Income-tax Act, 1961, and the relevant provisions. The court upheld that the cost of acquisition should be based on the cost for which the previous owner acquired the asset, as stated in section 49(1) of the Act.Issue 2: Computation of Indexed Cost of Acquisition with Reference to the Year the Previous Owner Held the AssetThe Tribunal held that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset. The court cited the case of CIT v. Smt. Daisy Devaiah, where it was held that the cost of acquisition should be calculated based on the indexed cost of acquisition of the previous owner. The court affirmed this interpretation, emphasizing that for the purpose of indexed cost of acquisition, it should be understood as the first year in which the previous owner held the property.Issue 3: Interpretation of Explanation (iii) of Section 48 Regarding Indexed Cost of AcquisitionThe Revenue argued that Explanation (iii) of section 48 defines the indexed cost of acquisition as the proportionate amount based on the cost inflation index for the year in which the asset was transferred. The court clarified that a harmonious reading of sections 48 and 49 indicates that the indexed cost of acquisition should be computed from the year the previous owner acquired the asset, not the year the assessee inherited it.Issue 4: Applicability of Cost Inflation Index for the Year 2006 in Determining the Cost of AcquisitionThe Revenue contended that the cost inflation index for the year 2006 should apply since the assessee acquired the property in 2006. The court rejected this argument, reiterating that the cost of acquisition should be based on the cost for which the previous owner acquired the asset, as supported by section 49(1) of the Act and the decision in CIT v. Smt. Daisy Devaiah.Issue 5: Eligibility for Deduction under Section 54F of the Income-tax Act, 1961The Revenue argued that the assessee did not satisfy the conditions under section 54F since the flats were handed over after the stipulated period. The court referred to the decision in CIT v. Sambandam Udaykumar, which held that the essence of section 54F is whether the assessee invested the capital gains in a residential house within the specified period, regardless of the completion or occupation status of the property. The court found that the assessee had invested the amount within the specified period and executed the sale deeds, thus entitling her to the benefit under section 54F.ConclusionThe court dismissed the appeal, finding no error in the Tribunal's order. The judgments confirmed that the indexed cost of acquisition should be computed from the year the previous owner held the asset and that the assessee is entitled to the benefits under section 54F, provided the investment is made within the specified period, regardless of the completion status of the residential property.