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2018 (10) TMI 794 - AT - Income TaxEligibility to claim deduction u/s 54EC - Long term capital - assessee has inherited the property from her grandmother who died intestate on 10/12/1999 - Held that - Some undisputed facts are that the assessee has inherited the property from her grandmother who died intestate on 10/12/1999. Nothing on record suggest that the property was first acquired by the legal heirs and thereafter transferred to the assessee. Even assuming that the property first devolved on the legal heirs and thereafter the assessee acquired the property from those legal heirs under a gift, even then in terms of Section 2(42A) Explanation 1(b) read with Section 49(1)(ii), the holding period of donor was includible while counting the assessee s holding period. Therefore, both the situation i.e. gift as well as inheritance stand on same footing and are respectively covered by Section 49(1)(ii) & Section 49(1)(iii)(a). Viewed from any angle, the holding period of previous owner was includible in the assessee s holding period. This being the case, we have no hesitation in holding that the nature of impugned gains was Long Term in nature and therefore, the indexation benefit as well as benefit of Section 54EC was available to the assessee. The facts on record reveal that the assessee has invested an amount of ₹ 37 Lacs in the eligible bonds as against sale consideration of ₹ 36.56 Lacs and therefore, the value of investment itself nullifies the entire sale consideration reflected by the assessee against the sale of property. - Decided in favour of assessee.
Issues Involved:
1. Classification of capital gains from the sale of immovable property as Long Term Capital Gains (LTCG) or Short Term Capital Gains (STCG). 2. Eligibility for deduction under Section 54EC of the Income Tax Act. Issue 1: Classification of Capital Gains The primary issue revolves around whether the capital gains of ?35,86,000/- from the sale of immovable property should be classified as Long Term Capital Gains (LTCG) or Short Term Capital Gains (STCG). The assessee sold a property acquired through a family arrangement in August 2006 and claimed it as LTCG, seeking exemption under Section 54EC. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified the gains as STCG, arguing that the property was held for less than 36 months from the date of family arrangement. The assessee contended that the property was inherited from the grandmother who died intestate on 10/12/1999, and thus, the holding period should include the period held by the previous owner, making it LTCG. The AO disagreed, stating that the property was acquired by the assessee only in August 2006 through a family arrangement, not directly inherited, and hence, the gains were STCG. Issue 2: Eligibility for Deduction under Section 54EC The second issue is whether the assessee is eligible for deduction under Section 54EC of the Income Tax Act. The AO and CIT(A) denied the deduction, asserting that since the gains were classified as STCG, the assessee was ineligible for the deduction under Section 54EC, which applies only to LTCG. Detailed Analysis: 1. Classification of Capital Gains: The Tribunal analyzed the facts and statutory provisions, particularly Section 2(42A) and Section 49(1) of the Income Tax Act. It was noted that the property was inherited from the grandmother who died intestate, and the holding period should include the period held by the previous owner, as per Explanation 1(b) to Section 2(42A) and Section 49(1)(ii). The Tribunal emphasized that both inheritance and gift scenarios are covered under these sections, and thus, the holding period of the previous owner must be included in the assessee's holding period. Consequently, the gains were classified as LTCG. 2. Eligibility for Deduction under Section 54EC: Given the classification of the gains as LTCG, the Tribunal held that the assessee was eligible for the deduction under Section 54EC. The assessee had invested ?37 Lacs in eligible bonds, which nullified the entire sale consideration of ?36.56 Lacs. The Tribunal drew strength from the Bombay High Court's decision in CIT Vs. Manjula J. Shah [355 ITR 474], which supported the inclusion of the previous owner's holding period for determining LTCG and the corresponding indexation benefits. The Tribunal concluded that the assessee's gains were LTCG, making the assessee eligible for the deduction under Section 54EC. The appeal was allowed, and the order pronounced in the open court on 10th October 2018.
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