2019 (3) TMI 1248 - AT - Income Tax

Tribunal upholds assessee's capital gains computation in inherited property sale dispute

ITO (IT) -4 (2) (1), Room No. 1728, Mumbai Versus Shri Rustem Homi Sethna J-8

The Tribunal upheld the Commissioner of Income Tax (Appeals)' decision in favor of the assessee regarding the computation of capital gains on the sale of ... Capital gain computation - indexation cost in cases covered by section 49 - previous owner of the property vs present owner of the property - flat received as a bequest from his deceased father - HELD THAT:- By applying the deeming provisions contained in Explanation 1(i)(b) to section 2(42A) the assessee was deemed to have held the asset from January 29, 1993, to June 30, 2003, by including the period for which the asset was held by the previous owner and, accordingly, held liable for long-term capital gains tax. While computing the capital gains, the indexed cost of acquisition had to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. See case of MANJULA J. SHAH (DEAD) [2011 (10) TMI 406 - BOMBAY HIGH COURT] also confirmed by SC [2018 (10) TMI 590 - SUPREME COURT]. The Hon’ble Delhi High Court in the case of Arun Shungloo Trust [2012 (2) TMI 259 - DELHI HIGH COURT] has also held that the benefit of indexation cost of improvement by previous owners in cases covered by section 49 would be allowed. - Decided against revenue. Issues:1. Computation of capital gain on the sale of inherited property - Indexed cost of acquisition.2. Interpretation of Explanation (iii) to section 48 of the Income Tax Act 1961.Issue 1: Computation of capital gain on the sale of inherited property - Indexed cost of acquisition:The appeal pertains to the assessment year 2013-14 and involves the calculation of capital gains on the sale of a property inherited by the assessee. The dispute revolves around the indexed cost of acquisition to be considered for computing the capital gains. The assessee claimed indexation benefit from 01.04.1981, based on the year when the deceased father acquired the property in March 1973. However, the Assessing Officer (AO) disagreed, citing a literal reading of Explanation (iii) to section 48 of the Act and chose the financial year 2010-11 as the denominator for indexation, resulting in a higher Long Term Capital Gain (LTCG) amount of &8377; 11,36,00,805/-. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal filed by the assessee, relying on precedents such as CIT v. Manjula J. Shah. The Tribunal upheld the CIT(A)'s decision, citing similar judgments and dismissed the appeal filed by the Revenue.Issue 2: Interpretation of Explanation (iii) to section 48 of the Income Tax Act 1961:The crux of this issue lies in the interpretation of Explanation (iii) to section 48 of the Act concerning the indexed cost of acquisition for computing capital gains. The Tribunal referred to the decision in Manjula J. Shah, where it was held that the indexed cost of acquisition should be calculated with reference to the year in which the previous owner first held the asset, not the year when the assessee became the owner. The Tribunal also noted that the Supreme Court dismissed the Special Leave Petition (SLP) filed by the Revenue against the decision in Manjula J. Shah, further supporting the interpretation. Additionally, citing the decision in Arun Shungloo Trust by the Delhi High Court, the Tribunal emphasized allowing the benefit of indexation cost of improvement by previous owners in relevant cases covered by section 49. Given the consistent legal precedents and identical facts, the Tribunal upheld the CIT(A)'s order, ultimately dismissing the appeal.In conclusion, the judgment delves into the nuanced aspects of computing capital gains on inherited property and the correct application of indexed cost of acquisition as per the provisions of the Income Tax Act 1961. The legal analysis provided by the Tribunal showcases a thorough examination of relevant case laws and statutory provisions to arrive at a well-reasoned decision, ensuring consistency with established legal principles and precedents.