Capital gains - cost of acquisition

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Krishnamurthy Ramakrishnan (Querist)
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08 June 2013 Where property has been inherited by 3 brothers from their father, how is cost of acquisition arrived at for each brother?

Ganeshbabu K

Ganeshbabu K (Expert)
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08 June 2013 In case of an inherited or gifted property, the cost of acquisition is the cost to the original holder..
Refer section 49(1)

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Krishnamurthy Ramakrishnan

Krishnamurthy Ramakrishnan (Querist)
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08 June 2013 Thanks Ganeshbabu. My question is in the individual assessment of each brother, what will be the cost of acquisition? Is it the original cost of acquisition divided by 3? Or can each brother deduct the full cost of acquisition against his share of the sales proceeds

Krishnamurthy Ramakrishnan

Krishnamurthy Ramakrishnan (Querist)
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08 June 2013 Section 49(1):

......the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

It does not say in proportion. A plain reading in fact seems to suggest that each assessee can deduct FULL cost of acquisition of previous owner.

Any case law?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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08 June 2013 The previous owner had acquired the Property in full and not in divisions.
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Section 48 prescribes for the mode of computation of capital gain on the following lines-
The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer
ii) the cost of acquisition of the asset and the cost of any improvement thereto:
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The term full value of the consideration is wider than the term consideration. Consideration may be in respect of the portion only, but the full value of consideration means to cover the entire capital asset.
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Now suppose, for 1 equal portion of the property, Brother-1, receives Rs. 3.00 lac.
Then, for entering into the mechanism of Section 48, he has to take Full Value of consideration accruing on the property and the same will be at Rs. 9.00 lac.
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Now decide the manner in which you would like to go ahead.
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In the case of CITv Jeelani Basha(2002) 256 ITR 282, the honorable Madras high court held that where the assessee has given part possession of the property and received a part of the agreed consideration, capital gains should be assessed on the basis of the transfer of the possession in proportion to consideration.
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Suresh Mittal

Suresh Mittal (Expert)
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09 June 2013 In my opinion "Full value of consideration" means consideration including those received or receivable in cash or KIND. But in any case it shall be for the part of asset you are transferring and not of the others part.

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