1. Facts of the Case
- Mr. A owned a residential house property, which he had self-occupied for personal use.
- The property was purchased in January 1984 for ₹10,00,000.
- He sold the property in December 2008 for ₹15,00,000.
- He held the property for more than 24 months, making it a long-term capital asset under the Income Tax Act.
- There is no mention of reinvestment or claiming exemption under Section 54 or other provisions.
2. Issues in the Case
- What is the nature of capital gain – short-term or long-term?
- How is the capital gain computed when the asset was acquired before 1st April 2001?
- What is the applicable cost of acquisition for the purpose of computing capital gain?
- What is Mr. A’s capital gain liability under the Income Tax Act, 1961?
3. Legal Principles Covered
A. Section 2(29A) & 2(42A) – Definition of Long-Term Capital Asset
- Any capital asset held for more than 24 months (in case of immovable property like land or building) qualifies as a long-term capital asset.
B. Section 48 – Mode of Computation of Capital Gains
- Capital Gains = Full Value of Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Cost of Transfer)
- Since the property was purchased before 01.04.2001, Mr. A can take the Fair Market Value (FMV) as on 1st April 2001 as the deemed cost of acquisition.
C. Cost Inflation Index (CII)
For capital gains computation, the indexed cost of acquisition is calculated using the formula:
Indexed Cost = (CII in year of sale / CII in base year) × Cost of acquisition
- FMV as on 01.04.2001 can be substituted for actual cost since the property was acquired before that date.
- Let us assume FMV as on 01.04.2001 = ₹10,00,000 (in the absence of a valuation report).
| Particulars | Value |
|---|---|
| CII for FY 2001–02 (base year) | 100 |
| CII for FY 2008–09 (year of sale) | 137 |
4. Possible Judgement / Capital Gains Computation
Step-by-Step Calculation:
- Sale Consideration: ₹15,00,000
- Indexed Cost of Acquisition:
= ₹10,00,000 × (137 / 100)
= ₹13,70,000 - Capital Gain = Sale Price – Indexed Cost
= ₹15,00,000 – ₹13,70,000
= ₹1,30,000 (Long-Term Capital Gain)
