Indexed cost of acquisition of gifted assets

CA Prarthana Jalan 

Indexed cost of acquisition is to be computed with reference to year in which previous owner first held gifted assets.

Hon’ble Delhi ITAT has in the case of DCIT V/s Soni Sonu Mirchandani has held that indexed cost of acquisition  to be computed with reference to the year in which the previous owner first held the gifted assets.

Brief facts of the case are that The assessee had shown long term capital gain in her return of income. AO noticed from the computation of capital gain that all the shares of four companies sold by assessee during the year were neither purchased by her nor allotted to her originally for which she had paid any cost. Instead, she had received all the shares through gift from her two sons Accordingly,the AO concluded that the case of assessee was covered u/s 49(1)(ii) of the I.T. Act which provides that where the capital asset become the property of assessee under the gift, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Hefurther pointed out that ‘previous owner of the property’ has been explained in relation to any capital asset owned by assessee as the last previous owner of the capital asset who acquired it by a mode of acquisition other
than that referred to in clause (ii) of section 49(1) of the I.T. Act.Accordingly, he concluded that benefit of indexation allowable in accordance with second proviso to section 48 of the I.T. Act will be subject to Explanation (iii) of section 48. He, therefore, pointed out that in order to work out the correct indexed cost of the acquisition of shares sold in accordance with Explanation (iii) to section 48 of the I.T. Act, 1961, it would be relevant to find out the cost of acquisition of shares by the previous owner and also assessee.the AO was of the view that the cost inflation index for the year in which the shares were first held by assessee (that is the year of acquisition by assessee) may should be applied and indexed and accordingly  cost of acquisition was  reworked . Thr Ld CIT(A) decided the case in favour of the assessee and also the Hon’ble tribunal by concluding as under after relying on various judicial pronuncements:-

In the present case also, while computing the capital gains arising on sale of shares acquired by the assessee by way of gift, the indexed cost of acquisition is to be computed with reference to the year in which the previous owners first held the assets and not the year in which the assessee became the owner of the asset. We, therefore, do not find any infirmity in the order of CIT(A) directing the AO to compute the capital gains in the case of the assessee by applying the indexed cost of acquisition in which the previous owners first held the shares in question. In view of the above discussion, the Department’s appeal is dismissed.