Juridical possession test defeats capital gains exemption where joint family possession and HUF status do not satisfy the seven-year requirement.

Capital gains on sale of property were considered exempt under the second proviso to section 12B(1) of the Income-tax Act, 1922 only if the property had been possessed by the assessee or a parent for at least seven years and the required possession was juridical, not merely actual. The Bombay High Court stated that, while the property belonged to a Hindu undivided family, juridical possession was joint with the assessee and his sons and was not exclusively with the assessee. It also held that the word "parent" could not be extended to include sons or a Hindu undivided family. On that reasoning, the exemption was unavailable and the capital gain remained taxable.

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Issues: Whether the assessee's capital gain on sale of property was exempt under the second proviso to section 12B(1) of the Income-tax Act, 1922 on the footing that the property had been possessed by the assessee or a parent for not less than seven years, and whether joint family possession or the status of a Hindu undivided family as a "parent" satisfied the proviso.

Analysis: The proviso required the property to be one whose income was chargeable under section 9 and to have been possessed by the assessee or a parent for at least seven years before the transfer. The Court held that the relevant possession was juridical possession, not mere actual possession. During the period when the property belonged to the undivided Hindu family, juridical possession was with the assessee and his sons jointly, not exclusively with the assessee. The Court further held that the expression "a parent" could not be stretched to include sons or a Hindu undivided family in the manner suggested.

Conclusion: The assessee did not satisfy the conditions of the second proviso to section 12B(1), and the capital gain was taxable.

Ratio Decidendi: For the seven-year possession requirement in the capital gains exemption proviso, possession must be juridical and exclusive to the assessee or his parent; joint family possession does not qualify, and the expression "parent" cannot be extended to cover sons or a Hindu undivided family.

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