2019 (4) TMI 1487 - HC - Income Tax

Capital gain computation - cost of acquisition of the property taken as the market value of the property as on 1st April 1981 and the indexation will be applied from 1st April 1981 with this base - whether definition of the expression previous owner of the property occurring in the Explanation to subsection 49(1) would be applicable to sub-clause 55(2)(b)(ii) since the definition is confined to subsection 49(1) only ? - HELD THAT - Both the issues are squarely covered against the Revenue by the Judgment of this Court in the case of Commissioner of Income-Tax Vs. Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT as held Tribunal was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. Exemption u/s 54 - housing complex in the present case is situated on a piece of land which is occupied by the Cooperative Housing Society under a long term lease - Revenue argued that Assessee has to sell a capital asset in the nature of building and land appurtenant thereto to claim exemption - HELD THAT - In the context of our case, what is important is that there should be a transfer of capital asset being a building or land appurtenant thereto and being a residential house. The requirements of this Section would be satisfied if these conditions are met with. The Revenue strangely argued that the transferrer of a capital asset of a residential unit, in order to claim benefit of Section 54, must also transfer the land appurtenant thereto. Firstly, there is no such prescription u/s 54(1). Secondly, such a rigid interpretation would disallow every claim in case of transfer of a residential unit in a Cooperative Housing Society. The very concept of Cooperative Housing Society is that the society is the owner of the land and continues to be so irrespective of the incomings and outgoings of its members. A member of Cooperative Housing Societies has possessory right over the plot of land which is allotted to him. In case of a constructed building of a Cooperative Housing Society, the member owns the constructed property and along with other members enjoys the possessory rights over the land on which such building is situated. In either case, a member of the Cooperative Housing Society even when he sells his house, never transfers the title in land to the purchaser. The present case is no different. Merely because the housing complex in the present case is situated on a piece of land which is occupied by the Cooperative Housing Society under a long term lease, would make no difference. - Decided against revenue.

Summary

Issues:
1. Acceptance of cost of acquisition for property.
2. Applicability of definition of 'previous owner of the property.'
3. Entitlement to exemption under Section 54 of the Income Tax Act.

Analysis:

1. The first issue revolves around the acceptance of the cost of acquisition for a property. The High Court referred to a previous judgment where it was held that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset, not the year in which the assessee became the owner. This principle was applied to the current case as well.

2. The second issue concerns the applicability of the definition of 'previous owner of the property.' The High Court noted that the definition in question was confined to a specific subsection. The court analyzed the facts of the case where the assessee received a property under a will and sold it later. The court emphasized that the definition of 'previous owner of the property' should not be extended beyond its intended scope.

3. The final issue involves the entitlement to exemption under Section 54 of the Income Tax Act. The assessee sold a property and invested a portion of the sale proceeds in a new residential unit. The Assessing Officer rejected the claim for exemption under Section 54, arguing that the property sold did not include the land appurtenant thereto. However, the High Court disagreed with the Revenue's interpretation. The court clarified that for the applicability of Section 54, it is sufficient to sell a capital asset in the form of a building or land appurtenant thereto, without the need to transfer both components.

In conclusion, the High Court dismissed the Income Tax Appeal, upholding the assessee's entitlement to exemption under Section 54 and clarifying the interpretation of relevant provisions in the Income Tax Act.