2001 (7) TMI 269 - AT - Income Tax

Appellate Tribunal clarifies capital gain calculation on inherited property

The Appellate Tribunal allowed the assessee's appeal, deleting the addition of Rs.1,21,180 as capital gain. The judgment clarifies the correct application ... Indexed cost of acquisition - deemed cost of acquisition on succession/inheritance - computation of capital gains under section 48 - application of section 49 to transfer by Will - effect of probate and date of acquisition of previous ownerIndexed cost of acquisition - deemed cost of acquisition on succession/inheritance - computation of capital gains under section 48 - application of section 49 to transfer by Will - Whether the cost of acquisition for the assessee (who inherited the property by Will) must be determined with reference to the cost to the previous owner and indexed to the year of transfer, and whether that computation yields any taxable capital gain for AY 1993-94. - HELD THAT: - The Tribunal held that where a capital asset is acquired by succession under a Will, the cost of acquisition in the hands of the beneficiary is to be deemed the cost for which the previous owner acquired the asset as provided by section 49(1). The assessee and her sister became owners on death of their father (17-2-1991) by operation of a valid Will, probate of which had been granted by the High Court in Nairobi. The Assessing Officer's reliance on the date of entry in the Estate Office records and reference to registration provisions was irrelevant to the statutory mode of acquisition by succession. The property was shown to have been originally acquired/constructed well before 1-4-1981 (report indicating 1969-1972) and the value as on 1-4-1981 (Rs.4,06,144) was accepted. Applying indexation from the 1-4-1981 base (index 100) to the year of sale (accounting year 1992-93, index 223) produces an indexed cost exceeding the sale consideration. Consequently, under section 48 (and the proviso relating to indexed cost for long-term capital assets) no long-term capital gain arises and the addition made by the Revenue was not sustainable. [Paras 9, 10, 11]The deemed cost of acquisition, being the previous owner's cost indexed from 1-4-1981 to the year of sale, exceeded the sale consideration; the addition of capital gain is deleted and the appeal is allowed.Final Conclusion: Appeal allowed; the Tribunal directed that the indexed cost of acquisition in the hands of the assessee (determined by reference to the previous owner's acquisition and indexation to the year of sale) exceeds the sale consideration, and therefore no taxable capital gain arises for AY 1993-94. Issues Involved:The judgment involves the determination of capital gain charged on the sale of inherited property u/s 48 and u/s 49 of the Income-tax Act.Capital Gain Calculation:The appeal concerns the refusal of relief to the assessee regarding the capital gain charged on the sale of a residential property inherited from the father. The Assessing Officer calculated the capital gain based on the indexed cost of acquisition, leading to an addition of Rs.1,21,180 to the assessee's income.Interpretation of Provisions:The dispute revolves around the correct application of sections 48 and 49 of the Income-tax Act. The provisions state that the cost of acquisition of an asset inherited by the assessee should be deemed as the cost for which the previous owner acquired it. The judgment emphasizes the importance of correctly determining the indexed cost of acquisition in such cases.Validity of Inherited Property:The judgment highlights that the property was inherited through a valid Will of the father, whose probate was granted by the High Court. The cost of acquisition should be determined based on the previous owner's acquisition cost, considering the property was acquired before 1972. The indexed cost of acquisition in the year of sale was calculated to be Rs. 9,05,701, exceeding the sale consideration, resulting in no taxable capital gain for the assessee.Conclusion:The Appellate Tribunal allowed the assessee's appeal, deleting the addition of Rs.1,21,180 as capital gain. The judgment clarifies the correct application of provisions related to the calculation of capital gain on inherited property, emphasizing the importance of determining the indexed cost of acquisition accurately.