Indexed Cost of Acquisition

[Bayyareddy DK]

Dear Sir,

Though in the definition of 'indexed cost of acquisition', the word used are, 'in which the asset was held by the assessee' a harmonious reading of Sections 48 and 49 makes it clear that, for the purpose of 'Indexed Cost of Acquisition', it has to be understood as the first year in which the previous owner held the said property. Otherwise, if the date of inheritance is taken into consideration, then the cost of acquisition of the asset on that date corresponding to the market value is to be taken into consideration.

My client purchased agricultural land in 2004 converted in the year 2014. He made agreement to sell but did not conclude the deal. He died in the year 2016. His son made agreement to sell to different party and received part payment. Son died due to Covid in April 21. Son's wife is making a sale now. What is my cost of acquisition, can I take market value in the year 21 as cost of acquisition even though I have 2004 purchase cost and converted costs which are very less. Please advice

AI Summary

Clarification sought on indexed cost of acquisition for tax: Use original owner's holding year, not current market value. A query was raised regarding the calculation of the indexed cost of acquisition for tax purposes. It was noted that the definition suggests considering the year the asset was held by the assessee, but a combined reading of Sections 48 and 49 indicates that it should be based on the first year the previous owner held the property. The situation involves an agricultural land purchased in 2004, converted in 2014, with a series of ownership changes due to deaths in the family. The current owner seeks advice on whether to use the 2021 market value as the cost of acquisition, given the original purchase and conversion costs are lower.