By TIOL News Service

MUMBAI, FEB 18, 2016: THE issue is - Whether assessee is entitled to Sec 54 benefits even if investment is made for acquisition of new property outside India. YES is the answer.

Facts of the case

The assessee is an individual, who is a non-resident. The assessee had sold a property which he had inherited from his parents. He took the cost of acquisition of this property as on 01.04.1981 and claimed indexation cost of acquisition w.e.f. 01.04.1981 and consequently computed the Long Term Capital Gains on sale. The assessee further claimed exemption under section 54 in respect of investment in the acquisition of new residential property at USA and offered the remaining LTCG to tax. During assessment, the AO conlcuded that since the assessee inherited 50% share on his father's expiry in 1963, and 50% share on his mother's expiry in 2006, the indexed cost of acquisition was to be computed in two stages and rejected the claim for exemption under section 54 on the ground that the investment should have been a property situated in India, to get the said exemption.

On appeal, the CIT(A) upheld the AO's action in denying the assessee's claim for exemption under section 54, whereas directed the AO to allow indexation of the cost of acquisition w.e.f. 01.04.1981 in respect of the said property. Hence, the assessee and revenue had filed cross appeals.

The Tribunal held that,

Revenue's appeal

++ in respect of the assessee's claim that the indexed cost of acquisition, on inheritance of 50% of the said property on expiry of his father on 11.11.1963 is to be computed from 01.04.1981, there is no dispute. The dispute before us is in respect of the date to be adopted for computing the indexed cost of acquisition of the remaining 50% of the said property inherited by the assessee on the expiry of his mother on 18.10.2006; whether it should be 01.04.1981 as contended by the assessee or from financial year 2006-07 as held by the AO. We find that in the decision of the jurisdictional High Court in the case of Manjula J. Shah, followed by the CIT(A) in the impugned order and relied upon by the assessee, it has been held that where a property is acquired under a will or by gift and the asset was acquired by the earlier owner prior to 01.04.1981, then the indexation in respect of the said property is to be given w.e.f. 01.04.1981. Respectfully following the decision of the 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;

Assessee's appeal

++ we find that a similar issue has already been decided in the case of Ms. Dhun Jehan Contractor in ITA No. 7058/Mum/2013. In that case the Coordinate Bench, after considering the facts of that case thereof, allowed the assessee's claim for exemption under section 54 of the Act on account of investment in the acquisition of a new property outside India. In doing so the Coordinate Bench followed the decision of another Coordinate Bench of this Tribunal in the case of Girdhar Mohanani and Smt. Varsha Girdhar in ITA Nos. 4591 & 4592/Mum/2013 dated 06.05.2015;

++ following the decision of the Coordinate Bench of this Tribunal in the case of Ms. Dhun Jehan Contractor, 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. The AO is accordingly directed.

(See 2016-TIOL-287-ITAT-MUM)