Leasehold interest from an antecedent date allowed substitution of 1 January 1954 market value for capital gains computation.

A registered lease that expressly commenced from an antecedent date was treated as operating from that earlier date, so the lessee was regarded as having acquired the leasehold interest before 1 January 1954. On that footing, the capital-gains proviso in section 12B(2) of the Indian Income-tax Act, 1922 applied, because the asset had become the assessees' property before the statutory cut-off date. The assessees were therefore entitled to substitute the market value of the leasehold interest as on 1 January 1954 for computation of capital gains.

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Issues: Whether the assessees were entitled, for computation of capital gains, to substitute the market value of the leasehold property as on 1 January 1954 under the third proviso to section 12B(2) of the Indian Income-tax Act, 1922.

Analysis: The lease executed by the Government on 12 May 1954 expressly provided for a term of 999 years commencing from 9 April 1943. Once a registered instrument is executed, it relates back to the date of execution, and the express commencement clause showed that the leasehold interest was intended to operate from the earlier date. On that basis, the assessees were to be treated as having acquired the leasehold interest much prior to 1 January 1954. The proviso to section 12B(2) therefore applied, because the capital asset had become the property of the assessees before the statutory cut-off date.

Conclusion: The assessees were entitled to substitute the market value of the leasehold interest as on 1 January 1954 for computing capital gains, and the answer to the reference was in the affirmative in favour of the assessees.

Ratio Decidendi: Where a registered lease expressly operates from an antecedent date, the lessee is treated as the owner of the leasehold interest from that earlier date for the purpose of the capital-gains proviso permitting substitution of fair market value on 1 January 1954.

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