2015 (11) TMI 1069 - AT - Income Tax

Gain arising from sale of capital asset - LTCG or STCG - CIT(A) treating the gain arising from sale of capital asset as long term capital gain - whether date of acquisition of capital asset is date of registration under Maharashtra ownership of flats (regulation of promotion of construction, sale, management and Transfer Act 1963) and not the date of allotment of letter? - Held that - the interest of the assessee accrued right from the date of allotment itself. The claim of the assessee is further supported by CBDT Circular No.672 and 471 dated 16/12/1993 and 15/10/1986 respectively clarifying that the allotee gets title to the property on the issuance of allotment letter and the payment of installments is only a follow of action and taking the delivery of possession is only a formality. The case of the assessee is further fortified by the ratio laid down in ACIT vs Smt. Sundar Kaur Sujan Singh Gad (2005 (4) TMI 518 - ITAT MUMBAI ) holding date of allotment is the relevant date for computing capital gains. Thus, we find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals) on the issue in hand - Decided against revenue. Deduction in respect of interest paid on borrowed capital to acquire capital asset - CIT(A) allowed the claim - there is no provision for such deduction, therefore, the conclusion drawn in the assessment order was defended - Held that - Section 48, which is meant for capital gains clearly envisages allowbility of such expenditure which is incurred wholly and exclusively in connection with such transfer and for the purpose of cost of acquisition of the asset as deduction from the full value of consideration received or accrued as a result of transfer of capital asset, which is chargeable under the head capital gain. The words in connection with used in section 48 (i) are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The Hon ble Karnataka High Court in Commissioner Of Income-Tax, Karnataka II Versus Maithreyi Pai (1983 (11) TMI 43 - KARNATAKA High Court ) held that interest on borrows is deductible only if is not allowed u/s 57 of the Act, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) on this issue also, therefore, dismissed. - Decided against revenue. Additions made invoking the provisions of section 50C - CIT(A) deleted the addition - Held that -Uncontrovertedly, the impugned payments were made through account payee cheque and the assessee furnished the complete list of vendors to whom the payments were made (through cheque), Cheque No., copy of invoices for the impugned amount were produced before the authorities. Admittedly, without interior work, largely kitchen, carpentry, ceiling and flooring the apartment cannot be come usable, thus, such investment was rightly held to be investment in the residential property, thus, we find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals), therefore, we find no merit in the impugned ground, raised by the Revenue, consequently, dismissed - Decided against revenue. Allowing deduction u/s 54 - treating the gain so arrived on transfer of capital asset as long term capital gains instead of short term capital gain - Held that - Considering the peculiar circumstances of that case, it was held that the benefit of section 54 should be extended by taking the date of allotment and occupation as the relevant date of purchase. As the relevant date to be taken for the purpose of applying of section 54 should be the date on which the flat was ready for occupation by the assessee. Taking that date as the date of purchase, is within the period of one year and therefore the capital gains are clearly exempt from tax applying the provisions of section 54. - Decided against revenue.

Issues Involved:
1. Classification of gains from the sale of capital assets as long-term or short-term capital gains.
2. Deductibility of interest paid on borrowed capital to acquire a capital asset.
3. Application of Section 50C of the Income Tax Act regarding the valuation of transferred capital assets.
4. Allowing expenditure claims for interior work on the capital asset.
5. Entitlement to deduction under Section 54 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Gains from Sale of Capital Assets:
The primary issue was whether the gains arising from the sale of flats should be treated as long-term or short-term capital gains. The Revenue argued that the date of registration under the Maharashtra Ownership of Flats Act, 1963, should be considered the date of acquisition, not the date of allotment. The assessee contended that the allotment letter dated 31/12/2004 should be the acquisition date, making the gains long-term.

Findings:
The Tribunal noted that the Assessing Officer treated the gains as short-term based on the registration date. However, the Tribunal held that the right over the capital asset was acquired on the allotment date, supported by various judicial precedents and CBDT Circulars No. 672 and 471. Thus, the gains were correctly classified as long-term capital gains by the Commissioner of Income Tax (Appeals).

2. Deductibility of Interest Paid on Borrowed Capital:
The second issue was whether the interest paid on housing loans for purchasing the flats could be deducted while computing capital gains. The Revenue argued that there is no provision under Section 48 of the Act for such a deduction.

Findings:
The Tribunal held that interest paid on borrowed capital is deductible if it has not been allowed under any other section. This view was supported by various judicial precedents, including Addl. CIT vs. K.S. Gupta and CIT vs. Mithilesh Kumari. Therefore, the interest paid was rightly treated as part of the cost of acquisition/improvement.

3. Application of Section 50C:
The third issue involved the application of Section 50C, which mandates that the value adopted by the Stamp Valuation Authority should be considered the full value of consideration for the transfer of capital assets.

Findings:
The Tribunal found that the Assessing Officer incorrectly applied the stamp valuation of other flats to the flats in question. The Commissioner of Income Tax (Appeals) correctly noted that the market value determined by the Stamp Duty Authorities for the specific flats was lower than the value on which the assessee transferred the flats. Thus, the addition made by the Assessing Officer was unjustified.

4. Allowing Expenditure Claims for Interior Work:
The fourth issue was whether the expenditure of Rs. 53,11,335 on interiors was allowable. The Revenue argued that no evidence was provided for such claims.

Findings:
The Tribunal observed that the payments were made through account payee cheques, and the assessee furnished a list of vendors and invoices. The interior work was necessary for making the flats usable, thus qualifying as an investment in the residential property. Therefore, the expenditure was rightly allowed.

5. Entitlement to Deduction under Section 54:
The final issue was whether the assessee was entitled to a deduction under Section 54 by treating the gains as long-term capital gains.

Findings:
Since the gains were classified as long-term, the assessee was entitled to the deduction under Section 54. The Tribunal supported this conclusion with the decision in V.M. Dujodwala vs. ITO, where the date of allotment was considered for computing capital gains.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income Tax (Appeals)'s decision on all grounds. The order was pronounced in the open court on 24/09/2015.

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