2021 (5) TMI 567 - AT - Income Tax

Assessee wins: Capital gain classified as Long Term Capital Gain in asset transfer

The Tribunal ruled in favor of the assessee, determining that the capital gain from the asset transfer should be treated as Long Term Capital Gain (LTCG) ... Long-term capital gain - short-term capital gain - transfer within the meaning of section 2(47) - right to specific performance - possession/holding period qualifying period of thirty-six months - valuation by District Valuation Officer versus Stamp Valuation AuthorityLong-term capital gain - short-term capital gain - transfer within the meaning of section 2(47) - possession/holding period qualifying period of thirty-six months - right to specific performance - Whether the gain on assignment/transfer of assessee's rights in the immovable property qualified as long term capital gain or short term capital gain. - HELD THAT: - The Tribunal examined the agreements for sale dated 06.04.1993 and the conveyance deed dated 08.05.2007 together and construed them as a whole. The documents acknowledge that the assessee was in exclusive use, occupation and possession of the properties from 1993 (the agreement and conveyance refer to possession and exclusive use), and there is no stipulation in the conveyance that possession was surrendered to the owners before the later formalities. The Tribunal found clause 22 of the conveyance to be ambiguously drafted and rejected the Revenue's construction that possession and the right to specific performance crystallised only upon the alleged balance payments in 2005/2006. Applying the principles in the judgments relied upon (including the analysis in H. Anil Kumar and Ved Prakash & Sons concerning rights under agreements to sell and relinquishment/extinguishment of such rights being capital assets/transfers under the Act), the Tribunal held that the assessee's right in the property amounted to a capital asset and that the assessee had held that right for more than the statutory qualifying period of thirty six months prior to transfer. On that basis the gain arising on assignment/transfer of the right was held to be long term capital gain and not short term capital gain. [Paras 20, 23, 24, 25]The assessee's gain on transfer of its rights in the property qualifies as long term capital gain.Final Conclusion: The assessee's appeal is allowed: the Tribunal holds that the assessee had possession/rights in the property for the requisite period and that the gain on transfer is long term capital gain for AY 2008 09. Issues Involved:1. Treatment of Long Term Capital Gain (LTCG) as Short Term Capital Gain (STCG).Detailed Analysis:1. Treatment of Long Term Capital Gain as Short Term Capital Gain:The primary issue in this case is whether the capital gain earned by the assessee on the transfer of the asset should be treated as Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG). The assessee contended that the gain should be treated as LTCG, while the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated it as STCG.Facts and Proceedings:- The original assessment was completed on 03.11.2010, and the assessee showed an income of Rs. 19,34,420/-. The AO made an addition on account of LTCG based on a sale consideration of Rs. 2 Crores shown in the conveyance deed dated 08.05.2007.- The case was reopened based on information that the Stamp Valuation Authority valued the property at Rs. 4,67,51,985/-. The AO issued a notice u/s 148 on 26.03.2014 and proceeded with reassessment, treating the stamp value of Rs. 4.6 Crores as the sale consideration.- The assessee contended that the stamp duty value was excessive and appointed an independent registered valuer. The AO referred the case to the District Valuation Officer (DVO), but the DVO's report was not received before the assessment order was passed, which led to the AO adopting the stamp value.CIT(A) Decision:- The CIT(A) received the DVO's report valuing the property at Rs. 2.30 Crores and directed the AO to adopt this value.- The CIT(A) examined the agreements to sale dated 06.04.1993 and the conveyance deed dated 08.05.2007 and concluded that the possession of the land was handed over to the assessee on 15.07.2006, and the right to specific performance accrued on 27.05.2005 when the full payment was made.- The CIT(A) held that the transfer of land to the assessee within the meaning of section 2(47) took place on 15.07.2006, and thus, the capital gain should be treated as STCG.Tribunal's Analysis:- The Tribunal noted that the assessee was in possession of the property since 1993, as acknowledged in the agreement to sale and the conveyance deed.- The Tribunal found ambiguity in the clause stating that possession was handed over on 15.07.2006. It concluded that the assessee was holding possession and had rights in the property since 1993.- The Tribunal relied on various judgments, including CIT v. Tata Services Ltd., CIT v. Vijay Flexible Containers, and CIT v. H. Anil Kumar, which supported the view that giving up a right to specific performance amounts to relinquishment of a capital asset and qualifies for LTCG.- The Tribunal held that the gain earned by the assessee was LTCG and not STCG, as the assessee possessed the property for more than the qualifying period of 36 months.Conclusion:The Tribunal allowed the appeal, ruling that the capital gain earned by the assessee on the transfer of the asset should be treated as Long Term Capital Gain (LTCG). The Tribunal emphasized that the assessee's possession and rights in the property since 1993 qualified the gain as LTCG, contrary to the CIT(A)'s decision to treat it as STCG.Order:The grounds of appeal raised by the assessee were allowed, and the order was announced on 22/10/2020.