Tribunal Confirms LTCG on Flat Sale; Indexed Cost from 2008, Exemption for Two Residential Units u/s 54.

The Tribunal ruled in favor of the assessee, determining that the gains from the sale of the residential flat qualify as Long Term Capital Gain (LTCG) based on the date of allotment. Consequently, the assessee is entitled to the benefit of indexed cost of acquisition from 2008. Additionally, the Tribunal granted exemption under Section 54 of the Income-tax Act, allowing investment in two residential units, referencing the interpretation that "a residential house" can include multiple units. The appeal was allowed, and the order was pronounced on 18/10/2018.

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Issues Involved:
1. Classification of gains on the sale of a residential flat as Short Term Capital Gain (STCG) vs. Long Term Capital Gain (LTCG).
2. Eligibility for exemption under Section 54 of the Income-tax Act.

Detailed Analysis:

Issue 1: Classification of Gains on Sale of Residential Flat

The primary contention is whether the gains from the sale of the residential flat should be treated as Short Term Capital Gain (STCG) or Long Term Capital Gain (LTCG). The assessee claimed the flat was acquired on 25.04.2008 and sold on 05.10.2011, thus qualifying for LTCG. The Assessing Officer (AO) disagreed, stating the flat was acquired on 19.07.2009, making the holding period less than 36 months, thus qualifying as STCG.

The assessee argued that the holding period should be counted from 25.04.2008, when the allotment letter was transferred to her name, citing various judicial precedents and CBDT Circulars No. 471 and 672. These circulars indicate that the date of allotment, not the date of registration, is relevant for computing the holding period for capital gains tax purposes.

The Tribunal found merit in the assessee's argument, referencing decisions from the Hon'ble Delhi High Court and Punjab & Haryana High Court, which support the view that the holding period starts from the date of allotment. Consequently, the Tribunal ruled that the gains should be treated as LTCG, allowing the benefit of indexed cost of acquisition from 2008.

Issue 2: Eligibility for Exemption under Section 54

The second issue is whether the assessee is eligible for exemption under Section 54 of the Income-tax Act. The AO disallowed the exemption on the grounds that the capital gains were treated as STCG and that the investment was made in two flats.

The Tribunal, having already classified the gains as LTCG, addressed the exemption claim. The Tribunal referenced the Hon'ble Karnataka High Court's decision in CIT vs. Jyothi K. Mehta, which held that the term "a residential house" in Section 54 should not be construed strictly in the singular form. The court ruled that the assessee is entitled to exemption even if the investment is made in more than one residential unit.

Thus, the Tribunal directed the AO to allow the exemption under Section 54, as the investment in two flats does not disqualify the assessee from the benefit.

Conclusion:

The Tribunal allowed the appeal, ruling that:
1. The gains from the sale of the residential flat should be treated as Long Term Capital Gain.
2. The assessee is entitled to exemption under Section 54 of the Income-tax Act, even if the investment is made in two residential units.

Order Pronounced:

The appeal of the assessee is allowed, and the order was pronounced in the open court on 18/10/2018.

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