Deemed period of holding confirms long term capital status; bond reinvestment exemption allowed; residence purchase needs deed verification.

Deeming provisions for assets acquired by succession or devolution require inclusion of the previous owner's period of holding and adoption of the previous owner's cost of acquisition, resulting here in long term capital asset treatment for the property and a favourable outcome for the taxpayer. The taxpayer's reinvestment in specified bonds met the statutory timing and requirements on the record, so the reinvestment exemption is allowable. The claim for exemption based on purchase of a residential property rests on actual execution of a registered conveyance within the prescribed period; absence of such deed on record prompted remand for factual verification and hearing.

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Issues: (i) Whether the property sold by the assessee is a long-term capital asset by inclusion of the period of holding of the previous owner/trust; (ii) Whether the assessee's investment in specified bonds qualifies for exemption under section 54EC of the Income-tax Act, 1961; (iii) Whether the assessee is entitled to exemption under section 54 of the Income-tax Act, 1961 based on the agreement to purchase a residential property.

Issue (i): Whether the property sold by the assessee is to be treated as a long-term capital asset by including the period of holding of the previous owner/trust.

Analysis: The Tribunal examined Explanation 1(b) to section 2(42A) together with section 49(1)(iii) of the Income-tax Act, 1961 and relevant judicial precedents. Those provisions deem the period for which the asset was held by the previous owner (where acquisition is by succession, inheritance or devolution) to be included in determining the period of holding in the hands of the assessee and deem the cost of acquisition to be that of the previous owner. The factual record shows the property originally vested in the family trust and devolved to the assessee on dissolution; therefore the deeming provisions apply.

Conclusion: The property is a long-term capital asset and the Tribunal rules in favour of the assessee on this issue.

Issue (ii): Whether the assessee's investment in specified bonds qualifies for exemption under section 54EC of the Income-tax Act, 1961.

Analysis: The Tribunal reviewed the claim and the material on record and noted that the Revenue has not produced any evidence disputing that the investment in specified bonds was made within the prescribed time and in accordance with section 54EC of the Income-tax Act, 1961.

Conclusion: The exemption under section 54EC is allowable; the Tribunal rules in favour of the assessee on this issue.

Issue (iii): Whether the assessee is entitled to exemption under section 54 of the Income-tax Act, 1961 based solely on an agreement to purchase a residential property.

Analysis: Section 54(1) requires that the assessee purchase the residential house within one year before or two years after the date of transfer (or construct within three years). The Tribunal observed that only an agreement to purchase dated 13.02.2017 was on record and no registered conveyance deed or final purchase deed evidencing actual purchase within the statutory period was produced. Consequently, allowability of the section 54 exemption requires verification of whether a registered conveyance/purchase deed was executed within the prescribed period.

Conclusion: The issue of entitlement to exemption under section 54 cannot be finally determined on the record before the Tribunal and is remitted to the Assessing Officer for verification and decision after giving the assessee an opportunity of being heard.

Final Conclusion: The Tribunal affirms that the capital gain is long-term and that the section 54EC exemption is allowable, while remanding the claim under section 54 to the Assessing Officer for factual verification of an executed registered purchase; overall the decision is partly in favour of the assessee.

Ratio Decidendi: Where a capital asset becomes the property of the assessee by succession, inheritance or devolution, the period for which the asset was held by the previous owner is to be included in determining the period of holding and the cost of acquisition is to be deemed to be the cost to the previous owner, thereby entitling the assessee to long-term capital gains treatment where those conditions are satisfied.

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