2011 (12) TMI 663 - AT - Income Tax

Summary

Issues Involved:
1. Classification of the sale of property as long-term capital loss or short-term capital gain.
2. Determination of the acquisition date of the capital asset.

Summary:

Issue 1: Classification of the Sale of Property

The Revenue's appeal contested the CIT(A)'s decision to treat the sale of property as a long-term capital loss instead of a short-term capital gain as determined by the AO. The Assessee, a company engaged in various businesses including developing resorts, declared a long-term capital loss of Rs. 5,23,66,272/- for AY 05-06. The AO argued that the ownership of the capital asset was not created in 1994 and thus classified the gain as short-term capital gain, adding Rs. 48,97,473/- to the total income. The CIT(A) disagreed, recognizing the right in the property as a capital asset acquired in 1994, and directed the AO to treat the gain as long-term capital gain.

Issue 2: Determination of the Acquisition Date of the Capital Asset

The Assessee claimed that the right to the property was acquired in 1994 when GCDA accepted the bid and issued an allotment letter. The AO contended that the right was acquired only in 2004 when the final payment was made. The CIT(A) and the Tribunal upheld that the right was acquired in 1994, citing judicial precedents such as CIT V/s. Tata Services Limited (122 ITR 594) and Ponds (India) Ltd. V/s. DCIT (64 ITD 33), which established that rights under an agreement are capital assets. The Tribunal concluded that the Assessee's right to purchase leasehold rights in the property was acquired on 4.11.1994, making the loss a long-term capital loss.

Conclusion:

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal and confirming that the loss should be treated as a long-term capital loss. The appeal by the Revenue was dismissed, and the order was pronounced in the open court on the 21st day of Dec. 2011.