ITO, CHENNAI vs. SUNIL PHILIP STEPHEN, CHENNAI

All the three appeals of the independent assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals) -16, Chennai. Since common issue arises for consideration in all the three appeals, we heard these three appeals together and disposing of the same by this common order.

The only issue arises for consideration is computation of capital gain.

Shri N. Madhavan, the Ld. Departmental Representative, submitted that all the three assessees inherited property from the respective parents. The Assessing Officer for the purpose of capital gain, computed the index cost of acquisition from the year in which the respective assessee inherited the property. According to the Ld. D.R., under the provisions of Income-tax Act, index cost of acquisition has to be computed from the year in which the assessee became the owner.

On the contrary, the Ld. representatives for the assessees, submitted that the CIT(Appeals) by placing reliance on the judgment of Bombay High Court in CIT v. Manjula J. Shah (2013) 355 ITR 474 held that for the purpose of computing capital gain, index cost of acquisition has to be computed with reference to original owner who acquired the property and not the legal heir who inherited the property. According to the Ld. representatives, the property was first held by respective parents on acquisition. On their death, the assessee inherited the property by operation of law. Therefore, according to the Ld. representatives, by rightly placing reliance on the judgment of Bombay High Court and other decisions of the Tribunal, the CIT(Appeals) directed the Assessing Officer to compute the index cost of acquisition from the year in which the original owner acquired the property.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that all the three assessees inherited the property from their respective parents by operation of law. The question arises for consideration is when the property was inherited by respective persons from the parents by operation of law, whether the index cost of acquisition has to be computed in the year in which they inherited the property or the year in which the original owner held the property. This issue was decided by Bombay High Court in Manjula J. Shah (supra). The Bombay High Court categorically held that the year in which the original owner acquired the property has to be taken for index cost of acquisition. In fact, the CIT(Appeals) has placed his reliance on this judgment of Bombay High Court.

In the result, all the three appeals filed by the Revenue are dismissed.