1985 (10) TMI 79 - HC - Income Tax

Land sale within 12 months deemed short-term capital asset

The High Court of BOMBAY ruled against the assessee in a case involving the sale of land within twelve months of acquisition. The court held that the ... Short-term capital asset - capital asset - date of acquisition / holding period - equity to obtain specific performance - part performance - cost of acquisitionShort-term capital asset - date of acquisition / holding period - equity to obtain specific performance - part performance - Classification of the gain of Rs. 71,670 as long-term or short-term capital gain under the Income-tax Act. - HELD THAT: - The Court held that possession pursuant to an agreement to purchase does not confer title; the purchaser only acquires an equity to obtain specific performance and, at best, rights arising from part performance. Title to the land was acquired only on execution of the registered conveyance dated September 25, 1964. The relevant holding period for determining whether the asset was a short-term capital asset must be computed from the date on which the assessee acquired title and held the property as owner. Since the portion sold on April 3, 1965 was disposed of within twelve months of the conveyance, the asset was a short-term capital asset and the gain was a short-term capital gain.The sum of Rs. 71,670 was not properly treated as long-term capital gains; it is a short-term capital gain.Cost of acquisition - market value - Whether the cost of acquisition of the portion sold should be taken as market value on the date of conveyance instead of the purchase price stated in the conveyance/agreement. - HELD THAT: - The Court rejected the assessee's contention that cost should be the market value as on the date of conveyance. The conveyance itself expressly recorded the purchase price, which was the same price as stated in the earlier agreement to purchase. Accordingly, there was no basis for substituting market value as the cost of acquisition; the cost is the price stated in the conveyance.The cost of acquisition is the price stated in the conveyance; it is not to be taken as market value as on the date of conveyance.Final Conclusion: The reference is answered against the assessee: the gain is a short-term capital gain and the cost of acquisition is the price stated in the conveyance; the assessee must pay the costs of the reference. Issues involved: Determination of whether a sum treated as long-term capital gains was properly assessed as such u/s 2(42A) of the Income-tax Act, 1961, read with section 2(14) of the said Act.Summary:The High Court of BOMBAY delivered a judgment regarding a reference u/s 256(1) of the Income-tax Act, 1961, for the assessment year 1966-67. The case involved the sale of a portion of land within 12 months of acquisition, leading to a dispute on the classification of capital gains. The Tribunal upheld the view that the transaction constituted a sale of a long-term capital asset. The main question referred was whether the sum in question should be treated as long-term capital gains.The definition of 'capital asset' and 'short-term capital asset' as per sections 2(14) and 2(42A) of the Income-tax Act were crucial in determining the nature of the transaction. The contention was whether the assessee held the land for more than twelve months before the sale. The Commissioner argued that the possession acquired through an agreement did not confer ownership, and the title was acquired only upon execution of the conveyance.In analyzing previous case law, the court distinguished a case where rights under an agreement were assigned from the current scenario where the title to the land was sold. The court rejected the argument that the cost of acquisition should be based on the market value at the time of conveyance, affirming that the price mentioned in the conveyance document was the relevant cost of acquisition.Ultimately, the court ruled against the assessee, holding that the portion of land sold within twelve months of acquisition constituted a short-term capital asset. The judgment favored the Revenue, and the assessee was directed to bear the costs of the reference.