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 portion of land sold constituted a short-term capital asset, rejecting the argument that possession acquired through an agreement conferred ownership. The judgment favored the Revenue, directing the assessee to bear the costs of the reference.

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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.

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