A capital asset
being shares and securities is considered as long term capital asset if
it is retained for more than 12 months and 36 months in case of other
assets and gain, if any arising from its sales is considered as long
term capital gain.
In
case of long term capital gains the capital gains is calculated
according to indexed cost of acquisition and improvement. Cost inflation
index of the year of acquisition and improvement is considered for the
purpose of capital gain calculation.
Where
the capital asset is acquired by a person as a result of gift or
inheritance, the question arises in mind which year’s cost inflation
index should be considered for calculating indexed cost of acquisition.
For
example if A purchases a property in the year 1985-86 and he dies in
2006-07 whereby the said property gets inherited by his only son B in
the year 2006-07. B sells the same property in year 2011-12.
Now
in the above case revenue would want to allow the indexation from year
2006-07 considering that B became owner of the property in year 2006-07,
however B would like to get the indexation from year 1985-86 i.e the
year in which the property was first acquired by his father A.
Explanation
1(b) to section 2(42A) of Income Tax Act, 1961 provides answer to the
above situation. It says that in the case of a capital asset which
becomes the property of the assessee in the circumstances mentioned in
sub-section (1)]of section 49[i.e in case of gift or inheritance or
liquidation of a company or under irrevocable trust], there shall be
included the period for which the asset was held by the previous owner
referred to in the said section.
That
means where an asset is acquired by gift or inheritance, the period of
long term capital asset shall be recokned from the date when the
previous owner acquired such asset and the indexation shall be allowed
accordingly from the year of acquisition by the previous owner.
Further
section 49(1) also provides that in such cases the cost of acquisition
of the asset shall be deemed to be the cost for which the previous owner
of the property acquired it, as increased by the cost of any
improvement of the assets incurred or borne by the previous owner or the
assessee, as the case may be.
Thus
the cost of acquisition as well as the cost of improvement by the
previous owner of a capital asset shall be the cost of acquisition of
such asset to the person selling the such capital asset acquired under
gift or inheritance and the indexation shall be allowed from the year of
acquisition or improvement by the previous owner.
Mumbai
ITAT has also held in (2009) 318 ITR (A.T.)417 that the indexation in
case of gifted or inherited property will be available from the year of
acquisition of such property by previous owner, similar view also find
support in (2012) 50 SOT 629, (2004) 89 TTJ Chd. Tribunal, 117 TTJ 121
Kolkata Tribunal, (2008) 19 SOT 251 Delhi Tribunal, (2010) 4 ITR 44
Chennai Tribunal.
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