2014 (3) TMI 474 - HC - Income Tax

Tax Court: Profits from short-term capital gains on apartment booking rights taxable. Exemption denied under Section 54. Upheld Assessing Officer's decision.

Sh. Gulshan Malik Versus Commissioner of Income Tax

Sh. Gulshan Malik Versus Commissioner of Income Tax - TMI Issues Involved:1. Whether capital gains are taxable as long-term or short-term capital gains.2. Determination of the date of acquisition of the capital asset.3. Applicability of Section 54 exemption.Issue-wise Detailed Analysis:1. Whether capital gains are taxable as long-term or short-term capital gains:The primary question of law is whether the capital gains arising from the sale of booking rights in an apartment are taxable as long-term or short-term capital gains. The appellant claimed the gains as long-term, asserting that the rights were held for more than 36 months. However, the Assessing Officer (AO) and the Income Tax Appellant Tribunal (ITAT) concluded that the gains were short-term, as the rights were held for less than 36 months from the date of the buyer's agreement.2. Determination of the date of acquisition of the capital asset:The appellant argued that the acquisition date should be considered as 31.07.2004, the date of the application for allotment and payment of the booking amount, or alternatively, 06.08.2004, the date of the provisional allotment letter. The AO, CIT-A, and ITAT held that the acquisition date was 04.11.2004, the date of the buyer's agreement. The court emphasized that a right or interest in an immovable property can only accrue through an agreement embodying consensus ad idem. The confirmation letter dated 06.08.2004 explicitly stated that no rights would accrue until the buyer's agreement was signed. Thus, the court concluded that the date of acquisition of the capital asset must be considered as 04.11.2004.3. Applicability of Section 54 exemption:The appellant claimed an exemption under Section 54 of the Income Tax Act, 1961, arguing that the capital gains were long-term and reinvested in another property. However, since the gains were deemed short-term, the exemption under Section 54 was not applicable. The AO added Rs. 28,20,000/- as short-term capital gains to the appellant's income, which was upheld by the CIT-A and ITAT.Conclusion:The court concluded that the capital asset in the form of booking rights was held for a period of 35 months and 28 days, rendering the profits from the transfer taxable as short-term capital gains. The appeal was dismissed, affirming the decisions of the AO, CIT-A, and ITAT. The court found no legal infirmity in the ITAT's order and distinguished the case from Ved Parkash, where the right of possession was transferred along with the agreement to sell, which was not the case here.