2015 (4) TMI 913 - AT - Income Tax

Calculation of Capital gain - Non consideration of the holding period of previous owner - Befefit of indexation - inherited the property - assessee entered into a collaboration agreement with a builder - assessee ground floor out of the building made by the builder and in addition to that builder also paid ₹ 21 lacs to the assessee - Held that - Almost similar were the facts in the case of Janhavi S. Desai 2012 (7) TMI 496 - BOMBAY HIGH COURT - the actual date of acquisition must be considered for calculating the capital gain. - the date on which the assessee inherited the property to be the relevant date and accordingly recomputed the capital gain. Scope of sec. 2(42A) of the Act - Explanation I only determines the holding period of an asset for the purpose of short term capital gains and has no application to long term capital gain for the assessee to get the benefit of indexation? - the period of holding shall be from 01.04.1981 in respect of the entire property where property was acquired by the previous owner before 1.4.1981. Similar view has been expressed by the Hon ble jurisdictional Delhi High Court in the case of Arun Shungloo Trust 2012 (2) TMI 259 - DELHI HIGH COURT holding that the assessee trust having acquired the property in trust on 05.01.1996, which property was acquired by the previous owner sometime before 01.04.1981 on sale of property by the assessee in 2001-02, it was entitled to the benefit of indexed cost of acquisition from 01.04.1981 and not for the period on or after 05.01.1996. The ratios laid down in these decisions also support the finding given by the Learned CIT(Appeals) on the issue. We thus do not find any reason to interfere with the first appellate order in this regard. The same is upheld. The grounds are accordingly rejected. - Decided against the revenue.

Issues Involved:
1. Whether the Learned CIT(Appeals) erred in accepting the assessee's bifurcation of sale consideration and valuation report without giving the A.O. an opportunity to examine the evidence, contravening Rule 46A of the I.T. Rules.
2. Whether the Learned CIT(Appeals) erred in ignoring the provisions of Explanation (iii) to sec. 48 by accepting the assessee's contention that indexation is to be allowed w.e.f. 01.04.1981 as the property was acquired by the previous owner before that date.
3. Whether the gain earned by the assessee should be assessed as long-term capital gain and corresponding amount of exemption available under sec. 54EC should be granted.

Detailed Analysis:

Issue 1: Rule 46A Contravention
The Revenue challenged the acceptance of the assessee's bifurcation of sale consideration and valuation report by the Learned CIT(Appeals) without providing the Assessing Officer (A.O.) an opportunity to examine the evidence, alleging a contravention of Rule 46A of the I.T. Rules. The Tribunal noted that the A.O. had considered the evidence provided by the assessee and had made observations based on it. Therefore, the Tribunal found no contravention of Rule 46A by the Learned CIT(Appeals).

Issue 2: Indexation from 01.04.1981
The Revenue contended that the Learned CIT(Appeals) erred in accepting the assessee's contention that indexation should be allowed from 01.04.1981, as the property was acquired by the previous owner before that date. The Tribunal observed that the property was inherited by the assessee in 2003 from his mother, who had purchased it in 1974. It was noted that the assessee had entered into a collaboration agreement with a builder in 2004, and the ground floor was sold in 2006. The Tribunal upheld the CIT(Appeals)'s decision, citing the provisions of section 49(1)(iii)(a) and relevant case laws, including CIT vs. Jahnvi S. Desai and Arun Shungloo Trust vs. CIT, which supported the assessee's claim for indexation from 01.04.1981.

Issue 3: Long-Term vs. Short-Term Capital Gain
The primary issue was whether the gain earned by the assessee should be assessed as long-term capital gain, allowing the corresponding exemption under sec. 54EC. The Tribunal examined the facts and noted that the assessee had inherited the property in 2003, entered into a collaboration agreement in 2004, and sold the ground floor in 2006. The A.O. had treated the capital gain as short-term, arguing that the ground floor was acquired and sold within 36 months. However, the Tribunal agreed with the CIT(Appeals) that the proportionate share of land should be treated as a long-term capital asset, as it was held by the assessee for more than 36 months, and the cost of acquisition should be indexed from 01.04.1981. The Tribunal also upheld the CIT(Appeals)'s decision to apportion the sale price between land and superstructure, treating the gain on the land as long-term and the gain on the superstructure as short-term, allowing the deduction under sec. 54EC.

Conclusion:
The Tribunal upheld the CIT(Appeals)'s order, rejecting the Revenue's grounds of appeal. The gain on the sale of the ground floor was correctly bifurcated into long-term and short-term capital gains, with appropriate indexation and deductions applied as per the provisions of the I.T. Act and relevant case laws. The appeal was dismissed, and the decision was pronounced in the open court on 17.02.2015.

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