2007 (12) TMI 468 - HC - Income Tax

Property possession since 1992 counts as long term ownership for capital gains exemption

The High Court upheld the Tribunal's decision, ruling in favor of the assessee that the capital gains from the sale of a residential house should be ... - Issues involved: The issue involves determining whether the capital gains arising from the sale of a residential house should be treated as long term capital gains.Summary:The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the assessment year 1998-99. The assessee was allotted a site by the Bangalore Development Authority under a lease cum-sale deed, subsequently obtaining ownership through a sale deed. The assessee constructed a house on the site, let it out, and later sold it. Claiming exemption under sec. 54 of the Income Tax Act, the assessee purchased another residential house. The Assessing Officer treated the capital gains as short term, but the Tribunal considered it as long term capital gains based on the provisions of section 2(47) (v) and the definition of 'transfer'. The revenue challenged this decision, arguing that the sale could not be considered long term as the sale deed was obtained in 1996 and the sale occurred in 1997.The High Court noted that the assessee was in possession of the property since 1992, enjoying it as an owner under the terms of the agreement. Referring to a previous case, the court held that possession under part performance of a contract should be treated as ownership from the date of possession. Therefore, as the assessee had possession for over 36 months before the sale in 1997, it qualified as long term capital gains under Sec.2(42) of the Income Tax Act. The court found no justification to interfere with the Tribunal's decision and ruled against the revenue, dismissing the appeal.