2016 (6) TMI 1081 - AT - Income Tax

Entitlement to cost of inflation index - inheritance of property - cost of inflation index from the year of inheritance of property and not from the date it was held by the previous owner - Held that - The assessee inherited the property on 04.08.2010. The said property was purchased by the assessee s father before 1981. After the death of the assessee s father, the property was inherited to the assessee along with other co-owners. Accordingly, the cost of indexation to be applied as on 1.4.1981, after fixing the value of the asset as on 1.4.1981 and it cannot be said that the assessee acquired property under dispute only on 04.08.2010 on the death of the assessee s father so as to compute the capital gains. In other words, capital gains has to be assessed as long term capital gains by fixing the cost of asset as on 1.4.1981 and thereafter applying the cost of inflation index in terms of sec.49(1)(iii)(a) of the Act. It needless to say that same view was taken in the case of CIT Vs. Manjula J.Shah reported in (2011 (10) TMI 406 - BOMBAY HIGH COURT ) Decided in favour of assessee. Allowability of deduction u/s.54EC - Held that - The issue is squarely covered by the judgement of jurisdictional High Court in the case of CIT Vs. C.Jaichander reported in 2014 (11) TMI 54 - MADRAS HIGH COURT wherein it was held that legislature by Finance (No.2) Act, 2014, with effect from 01.04.2015, inserted after existing proviso to sub-section(1) of Section 54EC second proviso, as per which investment made by an assessee in long term specified asset, out of capital gains arising from transfer of one or more original asset, during financial year in which original asset or assets are transferred and in subsequent financial year does not exceed fifty lakhs rupees. In this case, the assessee invested in REC Capital gains tax saving bonds on 31.01.2012 at ₹ 50/- lakhs, and on 31.05.2012 at ₹ 50/- lakhs. In view of jurisdictional High Court cited above, we are inclined to hold that the claim of assessee wherein the assessee has invested ₹ 50/- lakhs within six months of date of sale, but in two different financial years, is entitled for deduction u/s.54EC of the Act.- Decided in favour of assessee.

Summary

Issues:
1. Cost of inflation index for inherited property.
2. Allowability of deduction u/s.54EC for investments made in two different financial years.

Issue 1: Cost of inflation index for inherited property

The appeal was against the order of the Commissioner of Income-tax (Appeals) regarding the cost of inflation index for an inherited property. The assessee contended that the cost of inflation index should be calculated from the year of inheritance, not from the date held by the previous owner. The property was inherited after the demise of the father, and the cost of indexation was disputed. The Assessing Officer treated the year of inheritance as the year of acquisition, leading to a higher assessment. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the assessee became the owner of the property only after the father's death. The Tribunal referred to relevant sections of the Act and previous case law to determine the correct interpretation. It was held that indexation should be allowed based on the period of holding of the asset, irrespective of the individual owner. The Tribunal concluded that the cost of indexation should be applied as of 1.4.1981, the year the property was purchased, and not just from the date of inheritance in 2010. Citing precedents and the Supreme Court's decision, the Tribunal allowed the appeal in favor of the assessee.

Issue 2: Allowability of deduction u/s.54EC for investments made in two different financial years

The second ground of appeal concerned the deduction u/s.54EC for investments made in REC Bonds in two different financial years. The assessee invested ?50 lakhs each in two financial years and claimed the deduction u/s.54EC. The Commissioner of Income-tax (Appeals) denied the claim based on the existing provisions of the Act. However, the Tribunal referred to a judgment of the jurisdictional High Court, which clarified the legislative changes regarding investments in long-term specified assets. The High Court's decision allowed investments made within six months of the sale but in two different financial years to be eligible for the deduction u/s.54EC. Relying on this judgment, the Tribunal reversed the decision of the Commissioner of Income-tax (Appeals) and allowed the claim of the assessee. Consequently, the appeal of the assessee was allowed in this regard.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, determining the correct application of the cost of inflation index for inherited property and allowing the deduction u/s.54EC for investments made in two different financial years. The judgment provided clarity on the interpretation of relevant provisions of the Income Tax Act and highlighted the importance of considering legislative changes and judicial precedents in tax matters.