Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Inherited Property Sold Is Liable To Tax As Short-term or Long-term?

QUERY: Assessee along with other family persons had inherited a row house from his father during 2008. Row House was originally constructed in 1953. During 2009 said row house was demolished and residential building was constructed by all the legal heirs. In the building assessee was entitled for 2 flats. Building construction was completed in 2012 and immediately on completion assessee had sold one of the two houses allotted to him. What is the nature of gains on sale of flat? What would be cost of acquisition for the said house?
ANSWER: Section 49(1) of the Income-tax Act, 1961 prescribes for cost with reference to certain modes of acquisition. The section reads as under:

“Where the capital asset became the property of the assessee ------

(i) --------------------

(ii) Under a gift or will;

(iii) (a) by succession, inheritance or devolution, or ----------------

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 by the previous owner or the assessee, as the case may be.”

Now from the query, it is clear that the assessee had inherited a row house from his father, who constructed the same in 1953. So, the proportionate cost of constructing of row house be deducted from the gross consideration of the sale of flat. The sale of the said flat would be long term capital gain considering the Explanation 1(b) to section 2(42A) of the Act.

Posted in Income-tax

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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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