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2017 (3) TMI 1717 - AT - Income TaxComputation of capital gains on two properties and allowability of deduction u/s 54/54F - whether the period for computing the capital gains and for allowing deduction u/s 54/54F should be the date of allotment letter or the date of registration of the property in the name of the Assessee is to be adopted - whether the holding period of the properties for the purpose of computing capital gains should be considered from the date of allotment of properties by the builder or from the date of purchase agreement entered into by the Assessee? - Period of holding - Held that - We find that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Anita D Kanjani Vs. ACIT 2017 (2) TMI 788 - ITAT MUMBAI wherein the Coordinate Bench after analyzing various decisions of High Courts held that the holding period is to be determined in terms of section 2(42A) and therefore holding period should be computed from the date of allotment letter issued by the builder. It was also held that the issue of transfer of ownership is not the issue to be decided for computing the holding period but holding period is to be determined in terms of section 2(42A). The Delhi High Court in the case of Gulshan Malik Vs. CIT 2014 (3) TMI 474 - DELHI HIGH COURT though held that in terms of section 2(42A), the period of 36 months in respect of booking rights of an apartment with a builder has to be counted from the execution of agreement to sale i.e. buyers agreement but not the provisional allotment letter issued by the seller/developer, we would prefer to follow the decisions of various other High Courts which are in favour of the Assessee since as rightly pointed out by the A.R the allotment letter issued in this case is a conditional one and whereas in the Assessee s case it is a non conditional allotment letter issued by the builder. Further in view of the decision in the case of CIT Vs. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT wherein it was held that when two constructions are possible the view in favour of the Assessee is to be adopted. Therefore, we hold that holding period of the properties should be computed from the date of issue of allotment letter and in this case, if the date of allotment letter is considered the holding period becomes more than 36 months and consequently the property sold by the Assessee would be the long term capital asset in the hands of the Assessee taxable under long term capital gain. With regard to the contention of the AO that since the Assessee has claimed depreciation on one of the properties and therefore by virtue of the provisions of Section 50 gain arising from the transfer of such asset should be considered as short term capital gain, we find that this issue has been decided by the Jurisdictional High Court in the case of CIT Vs. Ace Builders Pvt. Ltd. 2005 (3) TMI 36 - BOMBAY HIGH COURT wherein the Hon ble High Court answered the following question in favour of the Assessee. Income earned by the Assessee on sale of factory shed should be treated as long term capital gains and is eligible for deduction u/s 54EC of the Act. Respectfully following the decision of the Jurisdictional High Court, we hold that the Assessee is entitled for deduction u/s 54/54F in respect of both the properties. Thus the grounds 1 to 4 raised by the revenue are rejected. Profit on sale of shares as short term capital gains and not as business income - Held that - No valid reason to disturb the reasoning of the CIT (Appeals) in holding that the gain on sale of shares held for less than 30 days should be assessed as business income and more than 30 days as short term capital gains. In the circumstances, we uphold the order of the Ld. CIT (Appeals) and reject the grounds of revenue on this issue.
Issues Involved:
1. Computation of capital gains on two properties and allowability of deduction u/s 54/54F. 2. Applicability of section 50 for deemed short term capital gain on sale of depreciable assets. 3. Assessing the profit on sale of shares as short term capital gains or business income. Issue-wise Detailed Analysis: 1. Computation of Capital Gains on Two Properties and Allowability of Deduction u/s 54/54F: The primary issue was whether the period for computing capital gains and allowing deduction u/s 54/54F should be based on the date of the allotment letter or the date of registration of the property. The Assessee purchased properties through allotment letters and later registered them. The Assessee claimed long term capital gains based on the allotment letters, which were issued more than three years before the sale, and sought deductions u/s 54/54F. The Assessing Officer (AO) computed short term capital gains based on the registration dates, arguing that real ownership was obtained through the purchase deeds. The Ld. CIT (Appeals) allowed the Assessee's claims, considering the holding period from the allotment dates. The Tribunal upheld this view, citing various High Court decisions, including the Coordinate Bench's decision in Anita D Kanjani Vs. ACIT, which emphasized that the holding period should be computed from the date of the allotment letter. The Tribunal preferred the view favoring the Assessee, following the Supreme Court's principle in CIT Vs. Vegetable Products Ltd. 2. Applicability of Section 50 for Deemed Short Term Capital Gain on Sale of Depreciable Assets: The Assessee argued that section 50 only prescribes the mode of computation of deemed short term capital gain and does not affect the entitlement to other benefits or exemptions under sections 54, 54F, 54EC, etc. The AO held that the Assessee was not entitled to exemption u/s 54F due to the applicability of section 50. The Tribunal referred to the Jurisdictional High Court's decision in CIT Vs. Ace Builders Pvt. Ltd., which clarified that the fiction created under section 50 is confined to the computation of capital gains and does not extend to other provisions like section 54E. Therefore, the Tribunal held that the Assessee is entitled to deductions u/s 54/54F despite the application of section 50. 3. Assessing the Profit on Sale of Shares as Short Term Capital Gains or Business Income: The AO treated the Assessee's income from the sale of shares as business income due to the high volume and short holding period of transactions. The Assessee contended that the shares were held as investments, not for trading, and provided evidence of substantial long-term holdings and dividend income. The Ld. CIT (Appeals) partially agreed with the AO, treating gains from shares held for less than 30 days as business income and those held for more than 30 days as short term capital gains. The Tribunal upheld the Ld. CIT (Appeals)'s decision, emphasizing that the Assessee's intention and conduct should be considered. The Tribunal noted that the Assessee's treatment of shares as investments in previous and subsequent years was not disputed, and the AO's treatment of gains as business income was inconsistent. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the Ld. CIT (Appeals)'s decisions on all issues. The period for computing capital gains was based on the allotment letter dates, the Assessee was entitled to deductions u/s 54/54F despite section 50's applicability, and the gains from shares were correctly classified based on the holding period.
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