2016 (1) TMI 897 - AT - Income Tax

Denial of claim of deduction u/s 54EC - short term capital gain or long term - inclusion of period of holding of the previous owner - inherited property - Held that - It has been clarified by way of explanation, the expression previous owner of the property in relation to any capital asset owned by the assessee means the last previous owner of the capital asset, who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section. Thus, capital gain tax is to be computed by taking into consideration the provisions of section 49(1)(iii)(e), i.e. taking the cost of acquisition of the asset in question to be the cost of acquisition in the hands of the previous owner. The flat in question was inherited by the assessee from his grandmother and the assessee obtained the affidavit cum declaration in August 2006 and thereafter the society carried out the transfer in the name of the assessee. In fact, the assessee did not inherit the property directly from her grandmother but from sons and daughters of grandmother. Even as per the provision of the Act, it is the cost of the previous owner which has to be reckoned, thus, in view of section 2(45A) of the Act r.w. Explanation-1 and the circumstances mentioned in section 49(1) of the Act, 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 asset incurred or borne by the assessee, as the case may be. The two sons/daughters who in turn gifted the property to the assessee on 08/08/2006, thus, this is the relevant date with respect to the term previous owner. The assessee sold the property on 27/09/2008 before the period of 36 months, thus, the capital gain arising there from cannot be said to be long term capital gains and is certainly a short term capital gain as the sale was effected almost within a period of 2 years. In this case, the previous owners are sons and daughters of Smt. Kantaben Shah (grandmother) and from whom the property came to the assessee. The property directly did not come to the possession of the assessee from the grandmother, therefore, the stand of the ld. Commissioner of Income Tax (Appeals) is affirmed. - Decided against assessee.

Summary

Issues:
Confirmation of long term capital gain as short term capital gain on the sale of immovable property, denial of deduction u/s 54EC of the Income Tax Act, 1961.

Detailed Analysis:

1. Confirmation of Capital Gain Type:
The appeal concerns the classification of a capital gain on the sale of inherited property. The assessee claimed exemption u/s 54EC by investing the sale proceeds in NHAI bonds, which was denied by the Assessing Officer. The dispute revolves around whether the gain should be treated as short term or long term capital gain.

2. Legal Inheritance and Transfer Process:
The property in question was inherited by the assessee through a family arrangement after the death of the grandmother. Various legal procedures were followed to transfer the property to the assessee's name. The transfer was completed in 2008, and the assessee invested in NHAI bonds in the same year.

3. Interpretation of Holding Period and Capital Gain:
The Tribunal analyzed sections 2(42A) and 49(1) of the Income Tax Act to determine the holding period of the property and the definition of short term capital gain. The focus was on whether the holding period should be calculated from the date of inheritance or the date of transfer to the assessee.

4. Previous Owner and Cost of Acquisition:
The judgment emphasized the concept of the "previous owner" in relation to the cost of acquisition of the property. It was established that the assessee inherited the property from the sons and daughters of the grandmother, not directly from the grandmother herself. Therefore, the cost of acquisition was deemed to be that of the previous owners.

5. Conclusion and Dismissal of Appeal:
Based on the legal provisions and the specific circumstances of the case, the Tribunal affirmed the decision of the Commissioner of Income Tax (Appeals) to treat the capital gain as short term. Consequently, the appeal of the assessee was dismissed, upholding the denial of the deduction u/s 54EC.

In conclusion, the judgment delves into the intricacies of inheritance, property transfer, holding period calculation, and the determination of capital gain type under the Income Tax Act. The decision highlights the importance of legal interpretations and precedents in resolving disputes related to capital gains taxation.