2005 (9) TMI 69 - HC - Income Tax

Flat sale capital gains deemed long-term; Tribunal upholds ruling for assessee

The court determined that the capital gains from the sale of a flat in a cooperative housing society should be considered as long-term capital gains, as ... Long-term capital gains - relevant date for computation of capital gains in case of transfer of shares in a co-operative housing society - transfer of shares in a co-operative housing society - bundle of rightsLong-term capital gains - relevant date for computation of capital gains in case of transfer of shares in a co-operative housing society - transfer of shares in a co-operative housing society - Whether the capital gains arising from sale of the flat allotted by the co-operative housing society were long-term capital gains by reference to the date of acquisition - HELD THAT: - The Tribunal held that the assessee acquired the capital asset when allotment was made and the price was agreed, and subsequent instalment payments related to the already acquired asset. This Court applied the ratio of CIT v. Anilaben Upendra Shah [2003] 262 ITR 657, which held that a member of a co-operative housing society effectively acquires the shares (and the incidental right to the flat) on the date of acquisition of shares, and that the relevant dates for computation of capital gains are the dates of acquisition and of transfer of those shares. Applying that principle to the present facts, the allotment (acquisition of shares) occurred on November 4, 1980, and the transfer (sale) took place on April 30, 1984, which is after the statutory period of 36 months; accordingly the surplus on sale qualifies as long-term capital gains.Capital gains arising from the sale are long-term capital gains as the relevant date of acquisition is the date of allotment of shares by the co-operative housing society.Final Conclusion: Reference answered in favour of the assessee and against the Revenue: the Tribunal was correct in holding the gains as long-term capital gains and the assessee is entitled to deductions applicable to long-term capital gains; reference disposed of with no order as to costs. Issues: Determination of long-term capital gains on the sale of a flat in a cooperative housing society.Analysis:The primary issue in this case was whether the capital gains arising from the sale of a flat in a cooperative housing society should be considered as long-term capital gains. The case involved the assessment year 1985-86 and the relevant accounting period being S.Y. 2040. The assessee became a member in the cooperative housing society and was allotted a flat in the building. The payment for the property was made in several instalments over a period. The property was under construction at the time of allotment and was completed later, with physical possession handed over to the assessee. The flat was eventually sold by the assessee, and long-term capital gains were calculated.The Assessing Officer initially considered the property holding period to be less than 36 months, leading to the assessment of short-term capital gains tax. However, upon appeal, the Tribunal held that the assessee had acquired the capital asset at the time of allotment and the subsequent payments were related to the already acquired asset. The Tribunal determined that the surplus should be taxed under long-term capital gains due to the holding period exceeding 36 months. The Tribunal's decision was based on the concept that a capital asset consists of a bundle of rights.The judgment referred to a previous decision by the court in a similar case involving a cooperative housing society. The court had previously ruled that the relevant date for computing capital gains tax in such cases would be the date on which the member acquires the shares in the cooperative housing society. Applying this precedent to the current case, it was concluded that since the assessee was allotted the share in the cooperative housing society in 1980 and sold it in 1984, after a period of 36 months, the surplus consideration should be treated as long-term capital gains.In conclusion, the court answered the question in favor of the assessee, confirming that the capital gains arising from the sale of the flat were indeed long-term capital gains. The Tribunal's decision was upheld, and the assessee was entitled to deduction from such gains as per the law. The reference was disposed of with no order as to costs.