2010 (9) TMI 850 - HC - Income Tax

Period of holding for flat starts from allotment date, making gains long-term and Section 54 exemption available

HC held that for purposes of determining long-term capital gains under Sections 2(14), 2(29A), and 2(42A), the period of holding begins from the date of ... Capital gains on account of sale of residential flat - entitlement to set off long term capital gain, u/s 54 - whether the capital gain arising on allotment of flat under the scheme of the DDA on 27.2.1982 of which actual flat number and delivery of possession took place on 15.5.1986 and the flat having been sold on 6.1.1989, was a long term capital gain; and consequently, whether the assessee was of the Act - Held that:- A conjoint reading of Section 2(14), 2(29A) and 2(42A), provisions leads to one conclusion that a capital asset which is held by the assessee for 36 months would be termed as a long term capital asset and any gain arising on account of sale thereof would constitute long term capital gain. According to the Circular No.471, issued by the Board, the allottee gets title to the property on the issuance of an allotment letter and the payment of instalments is only a consequential action upon which the delivery of possession flows. It is concluded that the provisions of Sections 2(14), 2(29A) and 2(42A) encompasses within its ambit those cases of capital asset which are held by an assessee. Once that is so, adverting to the facts of the present case, the assessee was allotted flat on 27.2.1982 on payment of instalments by issuance of an allotment letter and he had been making payment in terms thereof but the specific number of the flat was allocated to the assessee and possession delivered on 15.5.1986. The right of the assessee prior to 15.5.1986 was a right in the property. In such a situation, it cannot be held that prior to the said date, the assessee was not holding the flat. In favour of assessee. Issues:1. Interpretation of provisions of Income-tax Act, 1961 regarding capital gains exemption.2. Determination of whether the capital gain arising from the sale of a flat qualifies as long term capital gain.3. Assessment of eligibility for exemption under Section 54 of the Income Tax Act.Analysis:1. The appeal was filed against the order of the Income Tax Appellate Tribunal regarding the assessment year 1989-90. The assessing officer disallowed the exemption claimed by the appellant-assessee under Section 2(29A) of the Act, stating that the case fell under short term capital gain as per Section 2(42A). The Commissioner of Income-tax (Appeals) partly accepted the appeal, but the Tribunal dismissed it.2. The primary issue was whether the capital gain on the sale of a flat allotted on 27.2.1982, sold on 6.1.1989, and possession taken on 15.5.1986, qualified as long term capital gain. The assessee argued that the transaction was completed in 1982, making it a long term capital gain. The counsel relied on relevant statutory provisions and Circular No.471 dated 15.10.1986 to support the claim.3. The Court considered the definitions of capital asset, long term capital asset, and short term capital asset under Sections 2(14), 2(29A), and 2(42A) of the Act. It also referred to Circular No.471, which clarified the treatment of capital gains tax in cases of flat allotment under the Self-Financing Scheme of the Delhi Development Authority. The Court emphasized that the right of the assessee in the property existed before the possession was delivered, supporting the claim of long term capital gain.4. The Court analyzed previous case law and distinguished the case of Smt. Beena K. Jain, where the claim under Section 54F was upheld. In the present case, the Court concluded that the provisions of Sections 2(14), 2(29A), and 2(42A) covered cases where the asset was held by the assessee. As the assessee was allotted the flat in 1982 and had possession in 1986, the gain qualified as long term capital gain. Consequently, the substantial question of law was answered in favor of the assessee, and the appeal was allowed.