2012 (10) TMI 13 - AT - Income Tax

Capital Gain Indexed cost of acquisition under family arrangement Which year is used for indexation - PY in which the previous owner first held the asset or the year in which the asset received by assessee as per family arrangement Held that - Following the decision in case of Manjula J. Shah (2009 (10) TMI 646 - ITAT MUMBAI) for the purpose of computing long term capital gains arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation(iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. Appeal decides in favour of assessee Capital Gain - Exemption u/s 54 on purchase of car parking space along with flat Held that - As the car parking in a society cannot be separately purchase but it is attached with the flat in the society. Therefore, when any flat in the society is purchased along with car parking, then the investment in the flat and car parking will be considered as investment in the residential house. Therefore same is eligible for exemption u/s 54. Appeal decides in favour of assessee Capital Gain Whether Cost of improvement along with value of flat eligible for exemption u/s 54 - Assessee claimed exemption u/s 54 on the cost of purchase of new flat, car parking and cost of improvement in the new flat Held that - As the assessee has duly recorded all the expenditure in the books of account and the payments were made by account payee cheque. Therefore Assessee is entitled to cost of improvement except the air-conditioning plant which cannot he treated as integral part of the flat. Appeal decides partly in favour of assessee Transaction in shares, held as business income or capital gain Held that - As concluded from fact the motive of the assessee is not to earn the profit at the earliest possible opportunity available. When the holding period of the shares giving rise to short term capital gain in the majority of cases is more than three months, than it is clear that the intention of the assessee was to earn the gain due to appreciation of value of capital assets. Claim was accepted in the earlier years by the revenue and treated the surplus from sale and purchase of shares as capital gain. Therefore, principle of uniformity and consistency has to be maintained when the facts and circumstances are identical. Appeal decides in favour of assessee

Summary

Issues Involved:
1. Indexation of property.
2. Exemption under section 54 on purchase of parking space.
3. Exemption under section 54 on cost of improvement.
4. Classification of short-term capital gain versus business income.

Detailed Analysis:

1. Indexation of Property:
The first issue concerns the indexation of property acquired by the assessee. The Assessing Officer (AO) disallowed the claim for indexation with reference to 1.4.1981, arguing that the benefit of indexation should be allowed only from the date the assessee acquired the property. The CIT(A) allowed the claim, referencing the Special Bench decision in DCIT vs. Manjula J Shah, which held that for computing long-term capital gains, the indexed cost of acquisition should consider the period for which the property was held by the previous owner. The Tribunal upheld the CIT(A)'s decision, affirming that the indexation should be computed from 1.4.1981 as the property was acquired before this date by the previous owner.

2. Exemption Under Section 54 on Purchase of Parking Space:
The second issue pertains to the exemption under section 54 for the purchase of parking space. The AO denied the exemption, but the CIT(A) allowed it, holding that the cost of car parking forms an integral part of the flat. The Tribunal agreed with the CIT(A), noting that car parking in a society cannot be separately purchased and must be considered part of the residential house investment. Thus, the exemption under section 54 was rightly allowed for the car parking space.

3. Exemption Under Section 54 on Cost of Improvement:
The third issue involves the exemption under section 54 for the cost of improvement. The AO disallowed the claim, citing a lack of supporting evidence. The CIT(A) allowed the claim, noting that the AO did not examine the books of account or give the assessee an opportunity to justify the claim. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenditure was recorded in the books and paid by account payee cheques, thus validating the genuineness of the claim. The Tribunal found no error in the CIT(A)'s order, which allowed the cost of improvement except for the air-conditioning plant.

4. Classification of Short-Term Capital Gain vs. Business Income:
The fourth issue is whether the short-term capital gains from share transactions should be treated as business income. The AO classified the gains as business income, citing the volume of transactions and short holding periods. The CIT(A) accepted the assessee's claim of short-term capital gains, noting that the transactions were not repetitive and the shares were held as investments, not stock-in-trade. The Tribunal upheld the CIT(A)'s decision, highlighting that the assessee did not borrow funds for purchasing shares, the shares were shown as investments in the books, and the valuation was at cost. The Tribunal also noted the principle of consistency, as the revenue had accepted similar claims in previous years. Therefore, the Tribunal ruled in favor of the assessee, treating the gains as short-term capital gains rather than business income.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all four issues. The order was pronounced on June 13, 2012.