Date:21/07/2008 URL: http://www.thehindu.com/2008/07/21/stories/2008072151561600.htm

Business

Benefit of indexation for inherited, gifted property

Where inherited or gifted property is sold, the assessee is entitled to adopt the predecessor’s cost for computation of capital gains. I have received some advice that benefit of indexation of such cost will not be available. Is it right?

Cost of acquisition under Sec. 48 will be indexed cost of acquisition, whether computation is in respect of the property acquired by the assessee or it is in respect of inherited or gifted property. It is because devolution of property either by gift or inheritance is not regarded as transfer for purposes of capital gains tax under Sec. 47 of the Income-tax Act. Statutory provisions in Sec. 2(42A), proviso to Sec. 48 and Sec. 55(2)(b)(ii) of the Act can leave one in no doubt as to the right to indexation, a benefit, which substitutes earlier relief for capital gains under Sec. 80T, so as to reduce the bunching effect of taxing the escalation in value of the property for many years in a single assessment. Return form also does not indicate forfeiture of indexation for any class of assessees in computation of long term capital gains. Right to indexation in such cases has been recognised by the Tribunal in a number of cases as in Mrs. Pushpa Sofat v ITO (2004) 89 TTJ (Chd) 499, Dy. CIT v Meera Khera (2004) 136 Taxman 174 (Mum) (Mag) and Smt. Mina Deogun v ITO (2008) 8 DTR (Kol) (Trib) 223.