Delhi flat sale qualifies for LTCG treatment with indexation benefits from 1989 acquisition date

The ITAT Delhi held that the assessee's capital gain on sale of Delhi flat should be treated as LTCG, not STCG, with indexation benefits allowed. For the Faridabad flat acquired through gift, the tribunal applied the giftor's acquisition date and cost for indexation calculation. Regarding the Delhi flat, the tribunal ruled that the 2018 builder-buyer agreement was not a fresh allotment or exchange but merely redefined existing rights from the original 1989 booking with Ansal-DCM properties. The acquisition date was therefore reckoned from 1989, making it eligible for LTCG treatment. The CIT(A)'s order treating it as an exchange transaction was overturned. Assessee's appeal was allowed.

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Issues Involved:
1. Classification of Capital Gain (Long Term vs. Short Term) for Faridabad Flat.
2. Classification of Capital Gain (Long Term vs. Short Term) for Delhi Flat.
3. Consideration of cost of acquisition and holding period in case of gifted property.

Issue-wise Detailed Analysis:

1. Classification of Capital Gain for Faridabad Flat:
The Assessee, a resident of the USA, sold the Faridabad Flat for Rs. 1.95 Cr. The Assessee claimed a long-term capital loss based on the holding period starting from FY 2010-11, asserting that the property was held by his family members before being gifted to him. The Assessee relied on Explanation 1(b) to section 2(42A) and section 49(1) of the Income Tax Act, which consider the holding period and cost of acquisition of the previous owner in case of gifted property. The AO treated the gain as short-term, arguing that the property was only acquired upon possession in 2017, and the CIT(A) upheld this view, stating that the property was a short-term asset as it was possessed only from 2018. The Tribunal disagreed, citing the scheme of the Act and judicial precedents like DCIT Vs. Manjula J. Shah, concluding that the date and cost of acquisition should be reckoned from the previous owner, thus treating the gain as long-term.

2. Classification of Capital Gain for Delhi Flat:
The Assessee booked a flat with Ansal DCM Properties in 1989. Due to project delays, Purearth Infrastructure took over in 2005, and the Assessee's sister transferred her booking to him in 2014. The Assessee swapped two smaller units for one bigger unit in 2018, and the builder adjusted the payments made for the smaller units towards the new unit. The AO and CIT(A) treated the gain as short-term, considering the swap as an exchange and the acquisition date as 2018. The Tribunal observed that the agreement with Purearth was not a fresh allotment but a continuation of the original booking from 1989. The Tribunal held that the date of acquisition should be from the original booking date in 1989, thus treating the gain as long-term.

3. Consideration of Cost of Acquisition and Holding Period in Case of Gifted Property:
The Assessee argued that the cost and holding period of the previous owner (family members) should be considered for computing capital gain, as per sections 2(42A) and 49(1) of the Act. The AO and CIT(A) did not allow this, treating the property as acquired only upon possession. The Tribunal upheld the Assessee's view, emphasizing that the scheme of the Act allows for the holding period and cost of the previous owner to be considered in case of gifted property, thereby treating the gain as long-term.

Conclusion:
The Tribunal allowed the appeal, recognizing the transactions as long-term capital gains based on the original booking dates and the provisions of the Income Tax Act related to gifted properties. The orders of the AO and CIT(A) were overturned, and the Assessee's grounds were accepted.

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