Flat allotment rights may be a long-term capital asset, with section 54 relief available on investment in a new home.

Rights arising from a flat allotment letter can constitute a capital asset once enforceable allotment rights are acquired and held for more than 36 months, making their transfer taxable as long-term capital gains. Where the sale consideration is invested in a new residential house, section 54 relief is available against such gains. Admission of additional evidence before the first appellate authority does not violate Rule 46A if the material is sent to the Assessing Officer, examined in remand, and considered with the assessee's rejoinder.

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Issues: (i) whether the rights arising from provisional allotment of flats constituted a capital asset held by the assessee for more than thirty-six months so as to give rise to long-term capital gains on transfer or relinquishment; (ii) whether the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961 against the capital gains so computed; (iii) whether admission of additional evidence before the first appellate authority violated Rule 46A of the Income-tax Rules, 1962.

Issue (i): whether the rights arising from provisional allotment of flats constituted a capital asset held by the assessee for more than thirty-six months so as to give rise to long-term capital gains on transfer or relinquishment.

Analysis: The relevant capital asset was the right acquired on allotment of the flats, not merely a registered conveyance or completed possession. The definition of capital asset is wide and includes property of any kind held by the assessee. The allotment letters and payment schedule showed that the assessee acquired enforceable rights over the flats from the dates of allotment and held those rights for more than thirty-six months before transfer. The transfer of such rights was, therefore, within the capital gains provisions and the gains were assessable as long-term capital gains.

Conclusion: The issue is decided in favour of the assessee.

Issue (ii): whether the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961 against the capital gains so computed.

Analysis: Once the gains were held to arise from transfer of a long-term capital asset representing residential flat rights, the statutory condition for section 54 was satisfied. The investment of the sale consideration in a new residential house brought the case within the relief contemplated by section 54. The addition made by the Assessing Officer and sustained by the first appellate authority could not be retained.

Conclusion: The issue is decided in favour of the assessee.

Issue (iii): whether admission of additional evidence before the first appellate authority violated Rule 46A of the Income-tax Rules, 1962.

Analysis: The additional material was sent to the Assessing Officer for examination and a remand report was obtained and considered along with the assessee's rejoinder. In these circumstances, the appellate proceedings did not suffer from any procedural infraction under Rule 46A.

Conclusion: The issue is decided against the Revenue.

Final Conclusion: The assessee succeeded on the substantive exemption claim and the Revenue failed on the procedural objection, resulting in deletion of the addition and dismissal of the Revenue's appeal.

Ratio Decidendi: Rights acquired under a flat allotment letter constitute a capital asset capable of being held for the purposes of long-term capital gains, and where the proceeds are invested in a new residential house, exemption under section 54 is available; additional evidence considered after remand does not offend Rule 46A.

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