2019 (4) TMI 407 - AT - Income Tax

Previous owner's asset holding period affects capital gains calculation

Income Tax Officer (International Taxation) 3 (2) (1), Mumbai Versus Shri Arun C Mahale

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 ... Computation of long term capital gain - property inherited - indexed cost of acquisition u/s 49 - assessee had become the owner of the property after the death of his father and mother - whether, the benefit of indexation has to be taken from the year in which the asset was first held by previous owner and not from the year in which the asset was held by the assessee? - HELD THAT:- As MANJULA J. SHAH (DEAD) [2011 (10) TMI 406 - BOMBAY HIGH COURT] held the expression “held by the assessee” used in Explanation (iii) to section 48 has to be understood in the context and harmoniously with other sections and as the cost of acquisition stipulated in section 49 means the cost for which the previous owner had acquired the property, the term “held by the assessee” should be interpreted to include the period during which the property was held by the previous owner. Hence, indexation of cost of improvement shall be allowed from the date the previous owner acquired that asset. Further, the Hon’ble Delhi High Court in case of Arun Shungloo Trust [2012 (2) TMI 259 - DELHI HIGH COURT] has also held that 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 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.