2016 (2) TMI 1074 - AT - Income Tax

Profit on sale of the land - date of acquisition of asset - long term capital gain or short term capital gain - entitlement to deduction u/s 54F - Held that - The first date of acquisition, i.e. 20.12.2006, has to be treated as date of acquisition of capital asset. The actual date of sale of the property is 21.01.2010, which is beyond 36 months from the date of original acquisition. Hence, the asset has to be treated as long term capital asset. Therefore, the profit on sale of such land has to be treated as long term capital gain. Hence the assessee is eligible for deduction under Section 54F of the Act subject to the compliance with the conditions prescribed in Section 54F of the Act. In view of the above, we are unable to uphold the order of the lower authority. Therefore, the orders of the lower authorities are set aside. The Assessing Officer is directed to treat the profit on sale of the land as long term capital gain and examine whether the assessee has complied with the conditions prescribed in Section 54F of the Act. If the assessee has complied with the conditions prescribed in Section 54F of the Act, then the assessee is eligible for deduction under Section 54F of the Act. - Decided in favour of assessee.

Issues: Computation of capital gain - Whether profit on sale of land is long term or short term capital gain? Eligibility for indexation of cost.

Analysis:
The appeal pertains to the computation of capital gain for the assessment year 2010-11. The main issue is whether the profit on the sale of a land parcel should be considered as long term capital gain, as claimed by the assessee, or short term capital gain, as determined by the Assessing Officer. The assessee argued that the land was initially shown as stock-in-trade but later converted into an investment/capital asset before being sold. The date of acquisition of the property is crucial in determining the nature of the capital gain. The assessee contended that the original date of acquisition should be considered for determining the capital gain, citing relevant tribunal decisions. On the other hand, the Departmental Representative argued that the property was converted into a capital asset before the sale, making it a short term capital gain. The Assessing Officer had computed the capital gain based on the date of conversion into a capital asset.

The Tribunal analyzed the definition of "short-term capital asset" as per Section 2(42A) of the Income-tax Act, which refers to a capital asset held for not more than thirty-six months before its transfer. The Tribunal considered the date of acquisition of the property and the date of sale to determine the nature of the capital gain. Referring to a decision by the Pune Bench of the Tribunal, it was established that the cost of acquisition of an asset should be treated based on the date when the property was initially acquired, regardless of its character at that time. The Tribunal emphasized that an asset cannot be acquired twice, first as a non-capital asset and later as a capital asset. The judgment highlighted that there can only be one acquisition of an asset, irrespective of its character at that point in time.

Based on the above analysis, the Tribunal concluded that the original date of acquisition of the property should be considered for determining the capital gain. As the property was held for more than thirty-six months from the original acquisition date, it was classified as a long term capital asset. Therefore, the profit on the sale of the land was treated as long term capital gain, making the assessee eligible for deduction under Section 54F of the Income-tax Act, subject to compliance with the prescribed conditions. The Tribunal set aside the lower authorities' orders and directed the Assessing Officer to reevaluate the capital gain treatment and the assessee's eligibility for deduction under Section 54F. Consequently, the appeal of the assessee was allowed.

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