2019 (7) TMI 27 - HC - Income Tax

Industrial sheds transfer qualifies as long-term capital gains due to extended holding period, possession crucial for part-performance contracts.

South India Minerals Corporation Versus The Assistant Commissioner of Income Tax, Circle XIV, Chennai.

South India Minerals Corporation Versus The Assistant Commissioner of Income Tax, Circle XIV, Chennai. - [2019] 417 ITR 306 (Mad) Issues Involved:1. Assessment of Short Term Capital Gains vs. Long Term Capital Gains.2. Interpretation of 'held' in Section 2(42A) of the Income-tax Act.3. Application of Section 2(47)(v) of the Income-tax Act regarding transfer.Issue-wise Detailed Analysis:1. Assessment of Short Term Capital Gains vs. Long Term Capital Gains:The primary issue was whether the capital gains from the sale of two industrial sheds should be treated as short-term or long-term capital gains. The assessee argued that the gains should be classified as long-term based on the allotment date of the sheds (11.08.1988), while the Revenue contended that the sheds were only legally acquired on the date of the sale deed (11.01.1996), thus making the gains short-term.2. Interpretation of 'held' in Section 2(42A) of the Income-tax Act:The Court examined the definition of 'short-term capital asset' under Section 2(42A) of the Act, which states that a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer qualifies as a short-term capital asset. The Court emphasized the significance of the term 'held' rather than 'purchased' or 'owned,' indicating that the period of holding starts from the date the assessee was put in possession of the property, i.e., 11.08.1988.3. Application of Section 2(47)(v) of the Income-tax Act regarding transfer:The Court also considered Section 2(47)(v) of the Act, which includes any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract as a transfer. The Court noted that the assessee was in possession of the sheds since 1988 and had fulfilled all conditions of the lease-cum-sale agreement, thus holding the property under part performance of the contract as defined under Section 53A of the Transfer of Property Act, 1882.Conclusion:The Court concluded that the assessee had been holding the property since the date of allotment (11.08.1988). Therefore, the capital gains arising from the transfer of the sheds should be treated as long-term capital gains. The Court rejected the reliance on the Karnataka High Court's decision in CIT vs. V.V.Mody, as it was rendered before the insertion of sub-Clause (v) to Section 2(47) of the Act. The Court supported its decision by referring to similar cases where possession under part performance of a contract was considered for determining the holding period.Judgment:The appeal was allowed, and the substantial questions of law were answered in favor of the appellant/assessee. The Court held that the industrial sheds should be treated as long-term capital assets, and the gains arising from their transfer should be assessed as long-term capital gains.