11 August 2008
The following case law may be referred in this regard:
Mrs. Pushpa Sofat vs ITO (2001 81 ITD 1) ----------------------------------------
The concept of indexation was first introduced with effect from April 1, 1993. This grants assessees the benefit to upgrade the cost of acquisition based on index figures provided through a notification on a year-to-year basis.
It has not come as a surprise that even the concept of indexation has lead to confusion and differing interpretations.
The Chandigarh Bench of the Tribunal, in Mrs. Pushpa Sofat vs ITO (2001 81 ITD 1), had an occasion to examine the concept of indexed cost of acquisition, where an asset was acquired through inheritance and later sold for a consideration.
Facts, issues
The assessee and her sister were owners of an immovable property, which was sold by them in the accounting year 1992-93 for Rs 7,40,000. The said house was inherited by the two ladies from their father who died on February 17, 1991, in Nairobi. The house was built much before April 1, 1981, and was bequeathed to the daughters. The assessee, in her return for the assessment year 1993-94, duly disclosed the sale of the house, but claimed that no capital gains accrued on the above sale as the cost of property by applying cost inflation index in terms of Section 48(1)(a) was more than the sale consideration.
On appeal, the assessing officer (AO) did not agree with this proposition. In his view, the indexed cost of acquisition was to be worked out with reference to the date on which the father expired, that is, February 17, 1991, falling in the accounting year 1991-92. Accordingly, he worked out capital gain.
The assessee's appeal to the Commissioner (Appeals) was unsuccessful and consequently the matter reached the Tribunal. The issue before the Tribunal was whether the concept of indexation was to be applied right from the time the original owner held the property in question or whether indexation was available only from the time the incumbent got possession of the property after the death of the previous owner.
The assessee naturally argued that indexation should apply from the time the previous owner had the property. Section 48(1) defines indexed cost of acquisition and the crux of the issue lies in interpreting the words "for the first year in which the asset was held by the assessee... " occurring in the Section.
Tribunal decision
The Tribunal allowed the appeal in favour of the assessee, holding that the assessee was entitled to indexation benefit from the hands of the previous owner. There was ample evidence on record to show that the assessee's father had acquired the property much before 1981.
In the report of the valuation officer dated February 11, 1994, the period of construction of property was shown to be 1969-1972. There was, thus, sufficient evidence to show that property by the original owner was acquired in 1972 or near about. The cost of the acquisition of asset to the assessee shall be deemed to be the cost for which the previous owner had acquired the asset. As the asset was acquired prior to 1972, the indexed cost of acquisition in the hands of the previous owner as on April 1, 1981 (100), was to be considered as also the indexed cost in the accounting year 1992-93 (223) when the property was sold.
There was no dispute that the value of property as on April 1, 1981, was Rs 4,06,144. This was accepted both by the AO and the Commissioner (Appeals). Therefore, the deemed cost of acquisition, having regard to the indexed price in the year of sale (223), was worked out. And as the said figure was more than the sale consideration, no taxable capital gain accrued to the assessee.
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