2014 (12) TMI 264 - HC - Income Tax

Assessability of asset sale STCG or LTCG - sale of right - date of allotment letter issued by the builder - Whether the asset which was sold by the assessee would be subject to short term capital gains in terms of Section 2(42A) or long term capital gains in terms of Section 2(29A) Held that - The Tribunal placed reliance on Mrs.Madhu Kaul v. CIT 2014 (2) TMI 1117 - PUNJAB & HARYANA HIGH COURT - a right has been conferred on the allottee to hold a flat which was later identified and possession delivered on a later date - the mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter and the payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter - the allottee gets the title to the property on issuance of allotment letter and the payment in instalments is only a consequential act upon which delivery of possession to the property flows thus, there is no reason as to why the same principle should not be applied to all transactions based on agreements in respect of capital asset - the breach of agreement would only give right to the beneficiary for enforcing the right over the property thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Determination of the date of acquisition of property under Section 2(42A) of the Income Tax Act.
2. Computation of holding period for capital gains based on the date of allotment letter versus the date of delivery of possession.

Issue 1: Determination of the date of acquisition of property under Section 2(42A) of the Income Tax Act:
The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the date of acquisition of property. The assessee purchased an undivided share of land and entered into an agreement with a builder for construction. The dispute arose when the Assessing Officer considered the date of registration of the land as the purchase date, leading to the assessment of short-term capital gains. However, the Commissioner of Income Tax (Appeals) allowed the appeal based on Circular No.471 dated 15.10.1986, which emphasized the significance of the date of allotment letter in determining the date of acquisition. The Tribunal upheld this view, considering the date of allotment as crucial, not the date of sale deed. The Court concurred with this interpretation, dismissing the appeal by the Revenue.

Issue 2: Computation of holding period for capital gains based on the date of allotment letter versus the date of delivery of possession:
The Tribunal relied on decisions of the Punjab and Haryana High Court, emphasizing that the allotment letter confers the right to hold the property, and subsequent acts like possession delivery are consequential. The Court noted that the right to the property stems from the agreement date with the builder, not the possession date. The Circular highlighted that the allotment letter signifies the title transfer, with possession being a formality. The Court endorsed this view, stating that the breach of agreement only entitles the beneficiary to enforce property rights. Consequently, the Court dismissed the appeal, affirming that the date of allotment determines the acquisition date for computing capital gains, aligning with the Circular and previous judicial interpretations.

This comprehensive analysis of the judgment highlights the key legal issues, the factual background, the arguments presented, and the final decision rendered by the Court, providing a detailed understanding of the case.