Previous owner's asset holding period affects capital gains calculation

The tribunal held that the period of holding of assets by the previous owner should be considered for calculating long term capital gain. It determined that indexation benefits should start from the year the asset was first held by the previous owner, not from the year it was held by the assessee. The tribunal's decision aligned with judicial precedents and clarified the interpretation of relevant provisions, ultimately upholding the order of the Commissioner of Income Tax (Appeals) and dismissing the appeal.

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Issues:
1. Computation of long term capital gain including period of holding of assets by previous owner.

Analysis:
The appeal pertains to the computation of long term capital gain for the assessment year 2014-15. The primary issue revolves around whether the period of holding of assets by the previous owner should be considered for the purpose of calculating long term capital gain or if the indexed cost of acquisition should be computed based on the year in which the assessee became the owner of the property after the death of his parents. The assessee, a non-resident individual, along with his sister, sold an ancestral property inherited from their parents. The dispute arose when the Assessing Officer rejected the claim of the assessee for indexation benefits from the year 1981, as per a judgment of the Bombay High Court, and insisted that indexation should start from the year the asset was held by the assessee.

The Commissioner of Income Tax (Appeals) (CIT(A)) relied on the decision in Manjula J. Shah case and held that the benefit of indexation should be considered from the year in which the asset was first held by the previous owner, not from the year it was held by the assessee. The tribunal analyzed the interpretation of the term "held by the assessee" in Explanation (iii) to section 48 in conjunction with other relevant sections. It concluded that the cost of acquisition as per section 49 refers to the cost for which the previous owner acquired the property, hence the term "held by the assessee" should encompass the period during which the property was held by the previous owner, allowing indexation of cost of improvement from the date the previous owner acquired the asset.

Moreover, the tribunal noted that the Special Leave Petition (SLP) filed by the revenue against the order was dismissed by the Supreme Court due to the tax effect being below the threshold limit specified in circulars issued by the Central Board of Direct Taxes (CBDT). Additionally, referencing the decision of the Delhi High Court in the case of Arun Shungloo Trust, the tribunal affirmed that the benefit of indexation cost of improvement by previous owners in cases covered by section 49 should be permitted. Consequently, the tribunal upheld the order of the CIT(A) and dismissed the appeal.

In conclusion, the tribunal's decision clarified the interpretation of the relevant provisions regarding the computation of long term capital gain, emphasizing the inclusion of the period of holding by the previous owner for indexation benefits and aligning with judicial precedents.

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