2005 (9) TMI 69 - HC - Income Tax

Sale of flat capital gain deduction - Whether Tribunal was right in law in holding that the capital gains arising out of the sale of the flat in Venus Apartments was long-term capital gains and thereby the assessee was entitled to deduction from such gains as per law? - it is apparent that the assessee in the present case was allotted a share by the co-operative housing society on November 4 1980 and the sale of the same took place on April 30 1984 i.e. after a period of 36 months. The assessee was therefore justified in treating the surplus consideration as long-term capital gains. The Tribunal was therefore justified in holding that the capital gains so arising were long-term capital gains and the assessee was entitled to deduction from such gains as per law.

Summary

Issues: Determination of long-term capital gains on the sale of a flat in a cooperative housing society.

Analysis:
The primary issue in this case was whether the capital gains arising from the sale of a flat in a cooperative housing society should be considered as long-term capital gains. The case involved the assessment year 1985-86 and the relevant accounting period being S.Y. 2040. The assessee became a member in the cooperative housing society and was allotted a flat in the building. The payment for the property was made in several instalments over a period. The property was under construction at the time of allotment and was completed later, with physical possession handed over to the assessee. The flat was eventually sold by the assessee, and long-term capital gains were calculated.

The Assessing Officer initially considered the property holding period to be less than 36 months, leading to the assessment of short-term capital gains tax. However, upon appeal, the Tribunal held that the assessee had acquired the capital asset at the time of allotment and the subsequent payments were related to the already acquired asset. The Tribunal determined that the surplus should be taxed under long-term capital gains due to the holding period exceeding 36 months. The Tribunal's decision was based on the concept that a capital asset consists of a bundle of rights.

The judgment referred to a previous decision by the court in a similar case involving a cooperative housing society. The court had previously ruled that the relevant date for computing capital gains tax in such cases would be the date on which the member acquires the shares in the cooperative housing society. Applying this precedent to the current case, it was concluded that since the assessee was allotted the share in the cooperative housing society in 1980 and sold it in 1984, after a period of 36 months, the surplus consideration should be treated as long-term capital gains.

In conclusion, the court answered the question in favor of the assessee, confirming that the capital gains arising from the sale of the flat were indeed long-term capital gains. The Tribunal's decision was upheld, and the assessee was entitled to deduction from such gains as per the law. The reference was disposed of with no order as to costs.