COMMISSIONER OF INCOME TAX Vs. DAISY DEVAIAH

JUDGEMENT

(1.) THIS appeal is preferred by the revenue against the common order passed by the Tribunal in respect of the assesses setting -aside the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961 (for short hereinafter referred to as 'The Act') and granting relief to the assessee.

(2.) THE assessee in this appeal is one of the legal heirs of One Mr C. B. Devaiah. Mr C. B. Devaiah, owned the property, which had been acquired by him prior to 1.4.1981. Mr C. B. Devaiah died on 23.4.2000. His legal heirs sold the property owned by him during the previous year relevant to 2005 -06 i.e., on 18.10.2004. The assessee as one of the legal heirs was entitled to have 1/5th share in the property owned by Mr C. B. Devaiah. The assessee declared his capital gain on sale of the property in his returns of income filed for the assessment year 2005 -06. In the computation of capital gains, the assessee adopted the fair market value(FMV) of the property as on 1.4.1981 as the cost of acquisition of the property. The revenue did not dispute this valuation. The assessee while computing his cost of acquisition also claimed indexation on FMV as on 1.4.1981. The assessing authority while completing the assessment of the assessee, accepted the claim of the assessee in the order of assessment dated 30.11.2009 passed under Section 143(3) of the Act allowing the benefit of indexation from 1.4.1981. The Commissioner of Income Tax exercising his power under Section 263 of the Act was of the view that the Assessment Officer's order in the case of the assessee allowing the benefit of indexation from 1.4.1981 was erroneous and prejudicial to the interest of the revenue because, as per explanation (iii) to Sec.48 of the Act, "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April 1981, whichever is later. According to the appellate authority, the asset was held by the assessee only from 23.4.2000 when Mr. C. B. Devaiah died. Therefore, the benefit of indexation has to be allowed only from 23.4.2000 and not from 1.4.1981 as claimed by the assessee. Accordingly, the order passed by the Assessing authority was revised and assessing authority was directed to allow indexation benefit from financial year 2000 -01 only.

(3.) AGGRIEVED by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal after hearing both the parties and relying on a judgment of the Bombay High Court in the case of Commissioner of Income Tax vs Manjula J Shah,2012 68 DTR 269held that the Commissioner was not justified in not following the decision of the Hon'ble Bombay High Court, as the ratio of the decision of the Bombay High Court rendered in the context of acquisition of property by way of gift will apply with greater force when property devolves by succession. The view taken by the assessing authority was correct and therefore, the Commissioner of Income Tax was not justified in exercising his jurisdiction under Section 263 of the Act and in interfering with the order passed by the Assessing Authority. Therefore, the appeal was allowed. The order of the Appellate Authority was set -aside. The order of assessment was restored. Aggrieved by the said order, the revenue is in appeal.