2014 (1) TMI 1585 - HC - Income Tax

High Court affirms Tribunal decision on long-term capital gain & exemptions under Income Tax Act

The High Court upheld the Tribunal's decision, determining that the capital gain was long-term based on the holding period starting from the initial ... Exemption u/s 54EC and 54F - Held that:- Relying upon the decision in Smt. Saroj Aggarwal v. Commissioner of Income-tax [1985 (9) TMI 6 - SUPREME Court] - It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee - Even in the absence of a title deed, the assessee holds that property - It is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain. Merely because the original site which was allotted was cancelled, yet another site was allotted and the said site was also cancelled and thereafter the present site was allotted, in law - would make no difference - The consideration paid on 21.9.1988 is treated as the consideration for the sale dated 27.2.2008 - The assessee has invested the amount of capital gains as per the law - The assessee has rightly claimed the benefit of exemption under Section 54EC and 54F of the Act - Decided against Revenue. Issues Involved:1. Classification of capital gain as long-term or short-term.2. Entitlement to exemption under Sections 54EC and 54F of the Income Tax Act, 1961.3. Interpretation of the term 'held by the assessee' in Section 2(42-A) of the Income Tax Act.4. Determination of the date of acquisition for capital gains computation.Issue-wise Detailed Analysis:1. Classification of Capital Gain as Long-term or Short-term:The core issue was whether the capital gain from the sale of the property should be classified as long-term or short-term. The assessee sold a property within four months of its registration but claimed that the holding period should be calculated from the initial allotment date in 1988. The Tribunal held that the term 'held by the assessee' does not imply legal title but the right to hold the property from the date of initial allotment. Therefore, the sale was considered beyond three years, classifying the gain as long-term.2. Entitlement to Exemption under Sections 54EC and 54F:The assessee claimed exemptions under Sections 54EC and 54F by investing in specified bonds and purchasing a residential apartment. The Assessing Authority initially disallowed these claims, considering the gain as short-term. However, the Tribunal allowed the exemptions, recognizing the gain as long-term based on the holding period starting from the initial allotment date.3. Interpretation of the Term 'Held by the Assessee' in Section 2(42-A):The Tribunal interpreted 'held by the assessee' to mean the period from when the assessee acquired the right to the property, not necessarily the legal title. This interpretation was supported by the expanded definition of 'transfer' in Section 2(47) of the Act, which includes transactions conferring the enjoyment of property rights without a registered title deed.4. Determination of the Date of Acquisition for Capital Gains Computation:The date of acquisition was a significant point of contention. The Revenue argued that the acquisition date should be the date of the registered sale deed (27.02.2008), making the gain short-term. The Tribunal, however, held that the acquisition date should be the initial allotment date (21.09.1988), as the assessee had paid the full consideration and was put in possession from that date. This interpretation aligned with CBDT Circulars No. 471 and 495, which clarify that the allotment date and payment of consideration are crucial for determining the holding period.Conclusion:The High Court upheld the Tribunal's decision, affirming that the capital gain was long-term and the assessee was entitled to exemptions under Sections 54EC and 54F. The court emphasized a natural and equitable interpretation of the provisions, considering the assessee's bona fide actions and the legislative intent behind the tax exemptions. The appeal by the Revenue was dismissed, and the substantial question of law was answered in favor of the assessee.