2017 (11) TMI 1233 - AT - Income Tax

Appeals Granted for Capital Gain Exemption Under Section 54F

Shri Umashankar P. Mishra And Smt. Vandana Mishra Versus The DCIT-13 (3) (1) And The DCIT-13 (3) (1), Mumbai

Shri Umashankar P. Mishra And Smt. Vandana Mishra Versus The DCIT-13 (3) (1) And The DCIT-13 (3) (1), Mumbai - Tmi Issues Involved:1. Eligibility for exemption under Section 54 or 54F of the Income Tax Act.2. Classification of capital gain as long-term or short-term.3. Entitlement to indexation of the cost of acquisition.4. Charging of interest under Section 234B and 234D.5. Initiation of penalty under Section 271(1)(c).Detailed Analysis:1. Eligibility for Exemption under Section 54 or 54F of the Income Tax Act:The primary issue was whether the assessee was eligible for exemption under Section 54 or alternatively under Section 54F. The assessee had claimed exemption under Section 54 for the capital gain arising from the sale of an allotment letter for a flat. The Assessing Officer (AO) rejected this claim, considering the gain as a short-term capital gain since the period between the registration of the purchase agreement and the sale agreement was less than 36 months. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the gain was long-term but denied the exemption under Section 54, stating that the gain was from the sale of rights in the property, not a residential house.The Tribunal upheld that the gain was long-term, referencing the Bombay High Court's decision in CIT vs. Tata Services Ltd. and CIT vs. Vimal Lalchand Mutha, which considered the holding period from the date of allotment. The Tribunal concluded that the assessee was entitled to exemption under Section 54F, as the gain was from the sale of a long-term capital asset, and the proceeds were invested in a residential house.2. Classification of Capital Gain as Long-Term or Short-Term:The Tribunal had to determine whether the gain was long-term or short-term. The AO considered the gain as short-term because the period between the registration of the purchase agreement and the sale agreement was less than 36 months. However, the CIT(A) and the Tribunal held that the holding period should be calculated from the date of the allotment letter, making the gain long-term. This decision was supported by precedents from the Bombay High Court and the Mumbai Tribunal, which recognized the date of allotment as the start of the holding period for under-construction properties.3. Entitlement to Indexation of Cost of Acquisition:The assessee argued for indexation of the cost of acquisition from the date of each payment made towards the purchase of the flat. The Tribunal agreed with this view, allowing the benefit of indexation from the date of each payment, as opposed to the date of allotment. This decision was consistent with the jurisdictional tribunal's orders and supported by the facts that payments were made over several years.4. Charging of Interest under Section 234B and 234D:The grounds related to the charging of interest under Sections 234B and 234D were deemed consequential. The Tribunal did not consider it necessary to adjudicate these grounds separately, implying that the interest would be recalculated based on the revised assessment of the capital gains.5. Initiation of Penalty under Section 271(1)(c):The issue of penalty initiation under Section 271(1)(c) was considered premature by the Tribunal. Therefore, it was not adjudicated, leaving it open for future consideration based on the final assessment.Conclusion:The Tribunal partly allowed the appeals filed by the assessees, granting the benefit of long-term capital gain and exemption under Section 54F. The cross-appeal filed by the revenue was dismissed, as the Tribunal upheld the CIT(A)'s decision on the classification of the gain as long-term. The Tribunal directed the AO to compute the claim in accordance with Section 54F and allow the benefit of indexation from the date of each payment. The issues related to interest and penalty were not adjudicated, as they were deemed consequential or premature.