DCIT Vs Bharat Lakhaji Nandwana (ITAT Ahmedabad)
The appeal before the Income Tax Appellate Tribunal (ITAT), Ahmedabad, was filed by the Department against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 13.06.2025 for Assessment Year 2017–18. The central issue involved the nature of capital gains arising from the sale of a residential property and the eligibility of exemptions under Sections 54 and 54EC of the Income-tax Act, 1961.
The assessee, an individual, had declared long-term capital gains from the sale of a residential property and claimed exemptions under Sections 54 and 54EC. The property originally belonged to the assessee’s father and was later held by a family trust created under his will in 1984. Upon dissolution of the trust, the property was transferred to the beneficiaries, including the assessee, on 04.02.2017. Shortly thereafter, on 10.02.2017, the property was sold jointly by the beneficiaries.
During assessment proceedings, the Assessing Officer (AO) held that since the property was transferred to the assessee only a few days prior to its sale, it was a short-term capital asset. Consequently, the AO denied exemptions under Sections 54 and 54EC.
On appeal, the CIT(A) examined the factual and legal position and held that the provisions of Section 49(1)(iii) and Explanation 1(b) to Section 2(42A) applied. These provisions require inclusion of the holding period of the previous owner where the asset is acquired through succession, inheritance, or devolution. Since the property originally belonged to the assessee’s father and later vested in the trust before devolving to the assessee, the CIT(A) concluded that the holding period of the previous owner and the trust must be considered. Accordingly, the property was treated as a long-term capital asset.
