The assessee in his individual capacity inherited the property i.e. Bungalow situated near Grid Sub-Station, village Gotri, Vadodara along with his brother on the demise of their father late Shri Manubhai G. Amin on 23.12.1998. The property was sold for a consideration of Rs.3.35 crores. Thus, the assessee calculated his share of capital gain at Rs.21,24,438/- taking the benefit of “Cost Inflation Index” as per the base year 1981-82. The Assessing Officer was of the opinion that “Cost Inflation Index” should be as per the Financial Year 1998-99, as the property was acquired by the assessee on 23.12.1998. Consequently, the capital gain was recomputed by the Assessing Officer and the assessee’s 50% share was assessed at Rs.1,25,76,878/-.
The question which is posed for consideration is whether for considering the long term capital gain “Cost Inflation Index” is required to be considered at the date on which the property was inherited in the name of the assessee or as per the previous cost of acquisition at which previous owner had acquired the capital asset. The issue involved is squarely covered by the decision of this Court in the case of B.N. Vyas v. CIT  159 ITR 141 and the decision of the Bombay High Court in the case of CIT Vs. Manjula J. Shah (supra).
In the aforesaid decisions, it is held that for the purpose of computation of long term capital gain, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. In the aforesaid decisions, it was a case of gift. However, same analogy would be applied with respect to the property of inheritance.