2017 (9) TMI 720 - AT - Income Tax

Residential flat sale treated as long-term capital gains from 2005 allotment.

Asstt. Commissioner of Income Tax – 8 (3) (2), Mumbai Versus M/s Yogesh Agencies & Investments Pvt. Ltd.

Asstt. Commissioner of Income Tax – 8 (3) (2), Mumbai Versus M/s Yogesh Agencies & Investments Pvt. Ltd. - Tmi Issues Involved:1. Deletion of addition related to Short Term Capital Gains (STCG) on sale of two residential flats.2. Determination of the holding period for capital gains tax purposes.Issue-wise Detailed Analysis:1. Deletion of Addition Related to STCG on Sale of Two Residential Flats:The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 33,08,740/- in relation to STCG on the sale of two residential flats. The Assessing Officer (AO) had contended that the assessee acquired substantial rights in the flats only upon the execution of the registered purchase agreement on 14.03.2008, and since the flats were sold in October 2009, the gains should be treated as short-term. The AO relied on the decision in Mrs. Lata vs. Addl. CIT, where similar facts were considered.2. Determination of the Holding Period for Capital Gains Tax Purposes:The core issue was whether the holding period should be calculated from the date of the allotment letter in 2005 or from the date of the registered purchase agreement in 2008. The AO argued that the right to acquire the property was distinct from the ownership of the property itself, which only came into existence upon registration in 2008. Consequently, the AO computed the gains as short-term capital gains.Tribunal's Findings:1. CIT(A)'s Order:The CIT(A) held that the right to acquire the property, which was created by the allotment letter in 2005, culminated in the ownership of the flats. The CIT(A) referenced Section 53A of the Transfer of Property Act, asserting that the transfer took place when the contract was executed and part performance was done. Thus, the CIT(A) concluded that the holding period should be calculated from 2005, making the gains long-term.2. Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, emphasizing that the assessee acquired substantial rights in the flats upon the allotment in 2005, followed by installment payments. The Tribunal referred to CBDT Circulars No. 471 and 672, which stipulate that the date of allotment under similar schemes should be considered the date of acquisition for capital gains purposes. The Tribunal distinguished the case from Gulshan Malik v. CIT, noting that in the current case, the builder did not specifically state that the allotment letter would not create any title or interest in the flats.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that the gains from the sale of the flats should be treated as long-term capital gains. The assessee was entitled to the benefit of cost inflation index based on actual payments made and the date of payment for computing long-term capital gains. The Tribunal's decision was pronounced in the open court on 23rd August 2017.