Xavier had taken a loan from a bank by executing registered mortgage deed for the purchase of house at Ajmer on 26th May, 2001. The cost of house so purchased was ₹ 10 lakh. The said property was inherited by his son Abr

Treatment of amount paid for discharge of mortgage: Capital Gain The cost of inherited property for Mr. Abraham shall be the cost to the previous owner as per provisions of section 49(1)(iiia) of the Income Tax Act, 1961 and therefore, the cost paid by his father i.e. Mr. Xavier on 26.05.2001 for acquiring the property of ₹ 10 lakhs shall be the cost of acquisition to Mr. Abraham who is the new owner. Payment of outstanding loan of the predecessor by the successor for obtaining a clear title of the property by release of Mortgage Deed shall be the cost of acquisition to the successor under section 48 read with section 55(2) of the Income-tax Act, 1961 as held by the Apex Court in case of RM Arunachalam vs. CIT (1997) 227 ITR 222 . Computation of Capital Gain for A.Y. 2019-20 of Abraham Particulars Amount (₹) Sale consideration of the house property sold 80,00,000 Less: Indexed cost of acquisition Cost to previous owner (₹ 10,00,000 x 280 / 137) 20,43,796 Loan amount paid by Mr. Abraham to bank for obtaining clear title. (Benefit of CII is available since the loan amount of ₹ 8 lakh was paid in the financial year 2008-09) (₹ 8,00,000 x 280 / 137) 16,35,037 (36,78,833) Long-term Capital Gains 43,21,167 Working Note: The property was acquired by Mr. Abraham through inheritance being as per Will of father. Thus, the cost of acquisition will be cost to the previous owner being the amount paid by Xavier for purchase of house of ₹ 10 lakhs. As per the definition of indexation, cost of acquisition under clause (iii) of explanation below section 48, indexation benefit will be available only from the previous year in which Abraham first held the asset being the financial year 2008-09. Alternate Answer 2(a) The cost of inherited property for Mr. Abraham shall be the cost to the previous owner as per provisions of section 49(1)(iiia) of the Income Tax Act, 1961 and therefore, the cost paid by his father i.e. Mr. Xavier on 26.05.2001 for acquiring the property of ₹ 10 lakhs shall be the cost of acquisition to Mr. Abraham who is the new owner. Payment of outstanding loan of the predecessor by the successor for obtaining a clear title of the property by release of Mortgage Deed shall be the cost of acquisition to the successor under section 48 read with section 55(2) of the Income-tax Act, 1961 as held by the Apex Court in case of RM Arunachalam vs. CIT (1997) 227 ITR 222 . However, as per the view expressed by Bombay High Court, in the case of CIT v. Manjula J. Shah (2013) 355ITR 474 , in case the cost of acquisition of the capital asset in the hands of the assessee is taken to be cost of such asset in the hands of the previous owner, the indexation benefit would be available from the year in which the capital asset is acquired by the previous owner. Computation of Capital Gain for the A.Y. 2019-20 of Abraham Particulars Amount (₹) Sale consideration of the house property sold 80,00,000 Less: Indexed cost of acquisition Cost to previous owner (₹ 10,00,000 x 280 / 100) 28,00,000 Loan amount paid by Mr. Abraham to bank for obtaining clear title. (Benefit of CII is available since the loan amount of ₹ 8 lakhs was paid in the financial year 2008-09) (₹ 8,00,000 x 280 / 137) 16,35,037 (44,35,037) Long-term Capital Gains 35,64,963 Working Note: The property was acquired by Mr. Abraham through inheritance being as per Will of father. Thus, the cost of acquisition will be cost to the previous owner being the amount paid by Xavier for purchase of house of ₹ 10 lakhs.