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The judgment involves determining whether the property transferred was a short-term or long-term capital asset and the correct treatment of the consideration received by the assessee. Issue 1: Property Transferred and Holding Period The assessee was allotted a site by the Bangalore Development Authority and executed a sale deed in his favor on March 29, 1982. Subsequently, he sold the site to a third party on November 27, 1982. The Income-tax Officer considered it a case of short-term capital gains, while the Commissioner of Income-tax (Appeals) concluded that the asset had been held by the assessee since May 25, 1972. The Tribunal held that 50% of the selling price should be considered short-term and the remaining 50% as long-term capital gain. The High Court clarified that the asset transferred was the title in the site held by the assessee since March 29, 1982, making the gain a short-term capital gain. Issue 2: Legal Analysis of Transfer The Tribunal's approach of splitting the cost of acquisition and sale price into two halves, implying a transfer of both lease rights and ownership rights, was deemed legally unsound by the High Court. The court emphasized that upon acquiring absolute title to the property, the assessee's leasehold rights merged with the larger estate, extinguishing the lesser estate. The court cited the Transfer of Property Act to support the concept of merger when the interests of the lessee and lessor vest in the same person simultaneously. Therefore, the transfer made by the assessee was of the absolute title acquired on March 29, 1982, and not of any prior lease rights. Conclusion The High Court held that the leasehold rights held by the assessee could not be treated as a separate property right capable of generating capital gains post-merger with the absolute title. As the assessee held only one estate representing the title to the property at the time of transfer, any capital gain was deemed a short-term gain. Consequently, the court answered both questions in the negative, ruling against the assessee.
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