1997 (2) TMI 28 - HC - Income Tax

Question Of Law Long-term Capital Gains Short-term Capital Gains Bifurcation Of Capital Gains

Summary

Issues involved:
The issues involved in the judgment are whether the Appellate Tribunal was right in directing to bifurcate the terminal gains into long-term capital gains pertaining to land and short-term capital gains pertaining to superstructure.

Comprehensive details of the judgment:
The Commissioner of Income-tax filed a petition under section 256(2) of the Income-tax Act, 1961 seeking a reference on the question of law regarding the capital gains arising from the sale of a property. The assessee claimed exemption under section 80T of the Act on the entire capital gains by attributing it solely to the sale of land. However, the Assessing Officer considered the house and land as inseparable, leading to the conclusion that the entire gain was short-term capital gains.

The Commissioner of Income-tax (Appeals) held that a building on land constitutes a separate asset, and since the new asset was held for less than 36 months, the exemption under section 80T was not applicable. The Income-tax Appellate Tribunal, following previous decisions, allowed the bifurcation of gains into long-term capital gains for land and short-term gains for the building, granting the assessee exemption under section 80T for the former.

The High Court analyzed the definition of "capital asset" and "short-term capital asset" under the Act, emphasizing the possibility of separating ownership of land and building. It was concluded that even when sold as one unit, the gains can be bifurcated based on the period of holding. The Court rejected the Revenue's argument against bifurcation, citing previous case law and the specific provisions of the Act.

In light of established legal principles and precedents, the Court upheld the Tribunal's decision, stating that no referable question of law arose from the order. The Court affirmed the possibility of treating land as a separate capital asset, even if a building is constructed on it, and allowed the gains from the sale of land to be considered as long-term capital gains. The judgment was in favor of the assessee, and the tax case petition was rejected with no costs.