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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether, while computing indexed cost of acquisition of an inherited asset, indexation is to be taken from the year in which the previous owner first held the asset or from the year in which the assessee became owner; (ii) Whether exemption under section 54 is available where the new residential house is purchased outside India.
Issue (i): Whether, while computing indexed cost of acquisition of an inherited asset, indexation is to be taken from the year in which the previous owner first held the asset or from the year in which the assessee became owner.
Analysis: The asset was inherited by the assessee from her parents. For capital gains on such inherited property, the relevant computation has to follow the settled position that the holding period and indexation benefit are linked to the previous owner's acquisition, as recognised in the jurisdictional precedent applied by the appellate authority. The denial of indexation from an earlier base year was therefore not sustainable.
Conclusion: The issue is decided in favour of the assessee.
Issue (ii): Whether exemption under section 54 is available where the new residential house is purchased outside India.
Analysis: The exemption claim was rejected by the Assessing Officer solely because the new residential property was situated outside India. The appellate authority followed the binding judicial view that, for the relevant assessment year, section 54 did not contain a territorial restriction requiring the new house to be in India. The subsequent amendment introducing such words was held to apply prospectively and not to the assessee's year.
Conclusion: The issue is decided in favour of the assessee.
Final Conclusion: The revenue's challenge failed on both issues, and the relief granted to the assessee was sustained.
Ratio Decidendi: For inherited assets, indexation under section 48 follows the previous owner's holding, and section 54, as applicable for the relevant year, does not confine the new residential house to India unless the later prospective amendment applies.
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