2017 (2) TMI 788 - AT - Income Tax

Office Unit Classified as Long Term Capital Asset for Tax Purposes

The Tribunal classified the office unit as a 'long term capital asset' based on the holding period starting from the date of the allotment letter, ... Holding period - short-term capital asset - long-term capital asset - definition of 'held' in section 2(42A) - allotment letter as commencement of holding - transfer by registration vs de facto holdingHolding period - definition of 'held' in section 2(42A) - allotment letter as commencement of holding - long-term capital asset - Whether the office unit sold by the assessee was a long-term capital asset by virtue of being held from the date of allotment letter. - HELD THAT: - The Tribunal examined the statutory phrase 'held' in section 2(42A) and concluded that the legislature intended 'held' to denote de facto possession or right to hold the property and not strictly legal title arising only on registration. The Tribunal relied on High Court decisions and CBDT circulars analysing similar facts and the expanded scope of 'transfer' in section 2(47), observing that allotment coupled with payment of the first installment confers the right to hold and that such rights are sufficient to commence the holding period. The Tribunal distinguished the AO's reliance on Suraj Lamps (registration-based transfer of ownership) as addressing absolute legal ownership under transfer law, which is a different question from the computation of holding period under section 2(42A). Applying these principles to the chronology (allotment 11-04-2005; agreement signed 28-12-2007; registration 24-04-2008; sale 11-03-2011), the Tribunal held that counting from the allotment date yields a holding period exceeding 36 months and therefore the asset is a long-term capital asset. [Paras 10, 11, 12, 15, 16]Holding period computed from date of allotment letter; the asset is a long-term capital asset and the gain is long-term capital gain.Date of execution vs date of registration - section 47 of the Registration Act, 1908 - Alternative contention whether the holding period should commence from date of execution of the agreement (instead of date of registration) was not adjudicated. - HELD THAT: - The assessee alternatively argued that if the date of transfer is to be taken as the starting point, the date of execution of the sale agreement should be treated as operative under section 47 of the Registration Act and Supreme Court authority. The Tribunal expressly declined to decide this alternative contention at this stage. [Paras 17]Alternative issue not adjudicated and left open for consideration.Final Conclusion: Appeal allowed: Tribunal held that for the purpose of section 2(42A) the holding period begins from the date of allotment letter, making the asset a long-term capital asset and the gain taxable as long-term capital gain; an alternative contention regarding date of execution versus registration was not decided. Issues Involved:1. Classification of the capital asset as 'long term' or 'short term' based on the period of holding.2. Determination of the starting point for the holding period of the capital asset.Detailed Analysis:1. Classification of the Capital Asset:The primary issue in this appeal was whether the office unit sold by the assessee should be classified as a 'long term capital asset' or 'short term capital asset' under section 2(42A) of the Income-tax Act, 1961. The assessee argued that the asset was held for more than 36 months, qualifying it as a 'long term capital asset', while the Assessing Officer (AO) contended that the asset was a 'short term capital asset' since the agreement to sell was registered within 36 months of the sale date.2. Determination of the Holding Period:The AO computed the holding period from the date of registration of the agreement (24-04-2008) and concluded that the asset was a 'short term capital asset' when sold on 11-03-2011. The AO relied on the Supreme Court judgment in M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana, which held that the transfer of immovable property is effective only from the date of registration with the Sub Registrar.The assessee, however, argued that the holding period should be computed from the date of allotment (11-04-2005) or alternatively from the date of signing the agreement to sell (28-12-2007). The assessee supported his claim with several judgments, including Madhu Kaul v. CIT, CIT v. K Ramakrishnan, and others, which held that the allotment date is relevant for computing the holding period.Tribunal's Decision:The Tribunal analyzed section 2(42A) of the Income-tax Act, which defines 'short term capital asset' as a capital asset held for not more than 36 months immediately preceding the date of transfer. The Tribunal noted that the term 'held' indicates the de facto possession of the asset rather than legal ownership.The Tribunal referred to the Karnataka High Court's judgment in CIT vs A Suresh Rao, which clarified that for holding an asset, it is not necessary to have a registered deed of conveyance. The Tribunal also cited the Punjab & Haryana High Court's judgment in Madhu Kaul, which stated that the allotment letter confers a right to hold the property, and subsequent payments and possession are consequential acts.The Tribunal concluded that the holding period should be computed from the date of the allotment letter (11-04-2005), making the holding period more than 36 months. Consequently, the office unit was classified as a 'long term capital asset', and the gain from its sale was taxable as Long Term Capital Gain.Conclusion:The Tribunal allowed the appeal, directing that the property sold by the assessee be treated as a 'long term capital asset' based on the holding period starting from the date of the allotment letter. The alternative issue raised by the assessee regarding the date of execution of the sale agreement was not adjudicated. The appeal of the assessee was allowed, and the order was pronounced in the open court.