2024 (7) TMI 216 - AT - Income Tax

Holding period for capital gains starts from allotment letter date, not property registration date

Minaxi Mahesh Pawani (Deceased) through Legal Heir Pratik Mahesh Pawani Versus Income Tax Officer, International Taxation, Ward – 3 (3) (1), Mumbai

Minaxi Mahesh Pawani (Deceased) through Legal Heir Pratik Mahesh Pawani Versus Income Tax Officer, International Taxation, Ward – 3 (3) (1), Mumbai - TMI Issues Involved1. Classification of capital gains on the transfer of the right to acquire property as long-term or short-term.2. Denial of exemption under Section 54F of the Income Tax Act due to the failure to file a revised return of income.Detailed AnalysisIssue 1: Classification of Capital GainsThe primary issue is whether the capital gain reported by the assessee on the transfer of the right to acquire property should be treated as long-term capital gain (LTCG) or short-term capital gain (STCG). The assessee was allotted a flat on 15.02.2010, with an agreement executed on 13.05.2014 and a subsequent sale of the right to the property on 28.08.2015.Arguments by the Assessee:- The assessee argued that the holding period should be computed from the date of the allotment letter (15.02.2010), which would classify the gain as LTCG since the period exceeds 36 months.- The right to own the property was created at the time of the allotment letter, and the subsequent agreement was merely a formalization of this right.Arguments by the Assessing Officer:- The Assessing Officer treated the gain as STCG, considering the date of the registered agreement (13.05.2014) as the start of the holding period.- The capital gain was computed as STCG since the period between the agreement and the sale was less than 36 months.Tribunal’s Findings:- The Tribunal held that the right to own the property was created when the allotment letter was issued, not when the agreement was registered.- Citing judicial precedents, the Tribunal concluded that the holding period should be computed from the date of the allotment letter, making the gain LTCG.- The Tribunal directed that the capital gain on the transfer of the right to own the property be treated as LTCG.Issue 2: Denial of Exemption under Section 54FThe second issue pertains to the denial of exemption under Section 54F due to the assessee's failure to file a revised return of income.Arguments by the Assessee:- The assessee initially claimed a deduction under Section 54, which was incorrect, and later sought to claim under Section 54F during the assessment proceedings.- The assessee relied on judicial precedents to argue that appellate authorities have the power to entertain such claims even if a revised return was not filed.Arguments by the Assessing Officer:- The claim under Section 54F was denied because the assessee did not file a revised return to correct the initial claim under Section 54.Tribunal’s Findings:- The Tribunal held that the appellate authorities could entertain the claim under Section 54F, even if a revised return was not filed, based on the decisions of the Supreme Court in Goetze (India) Ltd. and Pruthvi Brokers and Shareholders.- The Tribunal remitted the matter to the Jurisdictional Assessing Officer (JAO) for verification of the computation provided by the assessee and directed that the claim under Section 54F be allowed if found correct.ConclusionThe Tribunal ruled in favor of the assessee on both issues. The capital gain on the transfer of the right to acquire the property was classified as long-term, and the claim for deduction under Section 54F was allowed, subject to verification by the JAO. The appeal was thus allowed in its entirety.