2021 (7) TMI 989 - HC - Income Tax

High Court affirms Tribunal's decision on indexed cost, exemption under Section 54

The High Court upheld the Tribunal's decision to use 01.04.1981 as the base year for calculating the indexed cost of acquisition, following the precedent ... Capital gain - assessee had computed the long term capital gains on the sale of house property and claimed exemption under Section 54 - Period of Holding of asset - HELD THAT:- Issue decided against the Revenue and in favour of the assessee in the judgment of Commissioner of Income-tax- 12 Vs. Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT]. Also see MR. VINAY MISHRA [2020 (9) TMI 96 - KARNATAKA HIGH COURT] and M/S. TILOKCHAND AND SONS [2019 (4) TMI 713 - MADRAS HIGH COURT] Issues Involved:1. Determination of the base year for calculating the indexed cost of acquisition.2. Validity of granting relief based on the Bombay High Court decision in the case of Manjula J. Shah.3. Entitlement to exemption under Section 54 for property purchased outside India and construction beyond the statutory time limit.Issue-wise Detailed Analysis:1. Determination of the base year for calculating the indexed cost of acquisition:The Revenue questioned whether the Tribunal was correct in holding that the base year for calculating the indexed cost of acquisition should be 01.04.1981, rather than the year in which the assessee inherited the asset. The Tribunal's decision was influenced by the Bombay High Court's ruling in the case of Manjula J. Shah, which determined that the indexed cost of acquisition must be calculated from the year the previous owner acquired the asset. The High Court reaffirmed this stance, referencing the Explanation 1(i)(b) to Section 2(42A) of the Income Tax Act, which includes the period the previous owner held the asset when determining the holding period for the assessee. Consequently, the Tribunal's decision to use 01.04.1981 as the base year was upheld.2. Validity of granting relief based on the Bombay High Court decision in the case of Manjula J. Shah:The Revenue challenged the Tribunal's reliance on the Bombay High Court's decision in Manjula J. Shah, arguing that the decision had not attained finality as an SLP was pending before the Supreme Court. The High Court dismissed this contention, noting that the Tribunal correctly applied the legal principles established in the Manjula J. Shah case, which were consistent with the statutory provisions. The High Court reiterated that the indexed cost of acquisition should be determined from the year the previous owner held the asset, thus validating the Tribunal's reliance on the Bombay High Court's decision.3. Entitlement to exemption under Section 54 for property purchased outside India and construction beyond the statutory time limit:The Revenue contested the Tribunal's decision to grant the assessee exemption under Section 54 for property purchased outside India and for construction beyond the statutory time limit. The High Court referenced prior judgments, including those from the Madras High Court (Tilokchand & Sons) and the Karnataka High Court (Vinay Mishra), which established that the amendments to Section 54, limiting the exemption to properties within India, were prospective and applicable from the assessment year 2015-16 onwards. The High Court concluded that for the relevant assessment year (2010-11), the assessee was entitled to the exemption under Section 54, regardless of the property's location and the construction timeline.Conclusion:The High Court dismissed both appeals, ruling in favor of the assessee on all contested issues. The decisions were based on established legal precedents and statutory interpretations, affirming the Tribunal's findings. The questions of law raised by the Revenue were resolved against them, and the appeals were dismissed with no costs.