2017 (7) TMI 1266 - AT - Income Tax

ITAT Mumbai: Ownership Duration Key in Taxing Capital Gains as Short Term

Jayantilal K. Jain Versus ITO 19 (3) (2), Mumbai

The Appellate Tribunal ITAT Mumbai upheld the decision confirming the treatment of Capital Gain as Short Term Capital Gain and denying the exemption under ... Treatment of Capital Gain arising out of sale of Shop as Short Term Capital Gain (STCG) - denying the exemption under section 54 - HELD THAT:- In Late Mulya B Dass Vs ITO (2014 (5) TMI 478 - ITAT MUMBAI) the assest was acquired on surrender of tenancy in the year 2005 and sold within 36 months of taking possession of the property, the AO treated the same as STCG, the AO treated the cost of acquisition of the property as nil. The coordinate bench of the Tribunal remanded the matter to the file of AO with the direction to consider the cost of acquisition as per market value; however no finding was given by Tribunal with regard to claim of Long Term or short Term. In Ajit M Pendurkar Vs ITO [2012 (12) TMI 1175 - ITAT MUMBAI] the assessee was tenant in the property form the year 1984. On 04.03.2004 by the scheme of the Government the assessee become owner of the property on payment of certain amount. The assessee sold the property on 31.10.2004. The assessing officer treated the gain as STCG as property was sold in less than 36 month. During the appeal before the Tribunal the assessee conceded that the Gain could be treated as STCG. Thus, none of the decision relied by the ld AR for the assessee is helpful to the assessee. CIT(A) is based on factual matrix and well as on legal aspect is correct. Thus, the ground of appeal raised by the assessee is dismissed. Issues:Confirmation of treatment of Capital Gain as Short Term Capital Gain and denial of exemption under section 54 of the Income Tax Act.Issue 1: Confirmation of treatment of Capital Gain as Short Term Capital GainThe appeal was filed against the order confirming the treatment of Capital Gain arising from the sale of a Shop as Short Term Capital Gain (STCG) and denying the exemption under section 54 of the Act. The assessee claimed Long Term Capital Gain (LTCG) on the sale of the Shop, which was converted from a tenancy right to ownership. The assessing officer treated the LTCG as STCG, leading to a dispute. The assessee argued that the conversion of tenancy to ownership entitled them to LTCG, citing relevant case law. However, the Revenue supported the lower authorities' decision, stating that the assessee did not qualify for LTCG as the property was acquired shortly before the sale. The Tribunal considered the submissions, including the detailed facts provided by the assessee, but ultimately dismissed the appeal. The Tribunal found that the assessee had held the property as an owner for only five months before the sale, leading to the gain being classified as STCG. The Tribunal concluded that the decision of the lower authorities was correct based on both factual and legal aspects, rejecting the arguments and case law cited by the assessee.Issue 2: Denial of exemption under section 54 of the Income Tax ActThe denial of exemption under section 54 of the Income Tax Act was a key aspect of the dispute. The assessee claimed exemption under section 54 for the Capital Gain arising from the sale of the Shop. However, the assessing officer denied this exemption by treating the gain as STCG instead of LTCG. The assessee contended that the conversion of the tenancy right into ownership should qualify for the exemption under section 54. The Tribunal, after considering the arguments and case law presented by both sides, upheld the decision of the lower authorities in denying the exemption. The Tribunal emphasized that the assessee had only owned the property for a short period before selling it, leading to the gain being categorized as STCG. Therefore, the Tribunal concluded that the denial of exemption under section 54 was justified based on the factual circumstances of the case.In conclusion, the Appellate Tribunal ITAT Mumbai upheld the decision confirming the treatment of Capital Gain as Short Term Capital Gain and denying the exemption under section 54 of the Income Tax Act. The Tribunal found that the assessee's ownership of the property for a brief period before the sale warranted the classification of the gain as STCG, leading to the dismissal of the appeal. The judgment highlighted the importance of the duration of ownership in determining the nature of Capital Gain for tax purposes.