2016 (2) TMI 570 - AT - Income Tax

Tax Tribunal grants exemption for foreign property investment under section 54

Income Tax Officer (It) -1 (1) Versus Shri Farokh Jal Deboo And Vica-Versa

The Tribunal allowed the assessee's appeal for A.Y. 2009-10, granting exemption under section 54 for investment in a residential property abroad. The ... Non-granting of exemption available u/s. 54 - the investment in the new residential house property was not situated in India - Held that:- Following the decision of the Coordinate Bench of this Tribunal in the case of Ms. Dhun Jehan Contractor (2015 (8) TMI 316 - ITAT MUMBA) we hold that the assessee is entitled to be allowed exemption under section 54 of the Act in respect of the investment made in the purchase of the new residential property abroad in 151, Whispering Lane, Winona, Winona County, Minnwsota 55987, USA.- Decided in favour of assessee Computation of LTCG - indexation of the cost of acquisition - property acquired through inheritance - Held that:- Respectfully following the decision of the Hon'ble Bombay High Court in the case of Manjula J. Shah ( 2011 (10) TMI 406 - BOMBAY HIGH COURT ), we hold that while computing the LTCG on transfer of the said property acquired by the assessee in the case on hand by inheritance, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset (i.e. the assessee's late mother first held her 50% share in the said property by inheritance on the expiry of her husband on 11.11.1963) and not in the year in which the assessee became the owner of the asset, viz. in 2006. We, accordingly, hold and direct the AO to allow indexation of the cost of acquisition of the said property entirely w.e.f. 01.04.1981. - Decided in favour of assessee Issues Involved:1. Non-granting of exemption under section 54 of the Income Tax Act, 1961.2. Dates to be adopted for indexed cost of acquisition.Issue-wise Detailed Analysis:1. Non-granting of exemption under section 54 of the Income Tax Act, 1961:The assessee appealed against the denial of exemption under section 54 of the Act for investment in a residential property situated outside India. The CIT(A) upheld the AO's decision, denying the exemption because the investment was not in a property situated in India. The assessee cited various judicial pronouncements from the Coordinate Bench of the Mumbai Tribunal and other Tribunals to support his claim for exemption under section 54, even for properties located abroad.The Tribunal referred to its previous decisions in similar cases, notably Ms. Dhun Jehan Contractor (ITA No. 7058/Mum/2013), where it was held that exemption under section 54 is allowable for investment in residential properties outside India. The Tribunal noted that the legislative amendment specifying that the new residential house must be in India was effective only from April 1, 2015, and thus not applicable to the assessment year 2009-10. Consequently, the Tribunal directed the AO to allow the exemption under section 54 for the assessee's investment in the property located in the USA, subject to verification of other conditions of section 54. Thus, the assessee's appeal on this issue was allowed.2. Dates to be adopted for indexed cost of acquisition:The Revenue's appeal contested the CIT(A)'s decision to allow the indexed cost of acquisition for the entire property from 01.04.1981. The AO had computed the indexed cost of acquisition in two stages: financial year 1981-82 for the 50% share inherited from the father and financial year 2006-07 for the 50% share inherited from the mother.The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in the case of Manjula J. Shah (355 ITR 474), which established that for properties acquired by inheritance, the indexation should be computed from the date the previous owner first held the asset. Thus, for the assessee, the indexed cost of acquisition for the entire property should be computed from 01.04.1981, the date when the previous owner (the mother) first held the asset. Consequently, the Revenue's appeal on this issue was dismissed.Conclusion:The assessee's appeal for A.Y. 2009-10 was allowed, granting exemption under section 54 for investment in a residential property abroad. The Revenue's cross appeal was dismissed, affirming the indexed cost of acquisition from 01.04.1981 for the entire property.