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2018 (10) TMI 1861 - AT - Income TaxGains on sale of residential flat - Short Term Capital Gain OR Long Term Capital Gains - Period of holding - HELD THAT - Considering the decision of various High Courts and the CBDT Circulars No. 471 672, we find that the holding period should be computed from the date of issue of allotment letter. In case, the holding period is more than 36 month from the date of allotment till the date of transfer, the asset is to be treated as Long Term Capital Asset in the hand of assessee and on transfer of such asset; the assessee would be entitled for Long Term Capital Gain. Assessee acquired the right in flat no. 302, 3rd Floor, Tower-C with car parking in Oberoi Spring, Oshiwara, Andheri vide allotment letter dated 25.04.2008, which is duly confirmed and acknowledge by M/s Oberoi Construction. The assessee sold the said flat on 05.10.2011. Therefore, the gain earned by assessee is taxable as Long Term Capital Gain. Hence, the ground no.1 of the appeal raised by assessee is allowed. Exemption u/s 54 - reinvestment of sale proceed in new residential house within two year after the date of transfer of old asset (old house) - HELD THAT - The Hon ble Karnataka High Court in CIT vs. Jyothi K. Mehta Jyothi 2011 (1) TMI 551 - KARNATAKA HIGH COURT held that in newly asset acquired after the sale of original asset can also be a building or lands appurtenant thereto, which also should be a residential house . Therefore, the letter 'a' in the context it was used should not be construed as meaning singular . But being an indefinite article, the said expression should be read in consonance with the other words 'buildings' and 'lands' and, therefore, the singular 'a residential house' also permits use of plural by virtue of section 13(2) of the General Clauses Act. Therefore, merely because the assessee purchased two units, it could not be said that she was not entitled to the benefit of section 54. Assessing Officer is directed to allow exemption to the assessee under section 54 - Appeal of the assessee is allowed.
Issues Involved:
1. Classification of gains on the sale of a residential flat as Short Term Capital Gain (STCG) vs. Long Term Capital Gain (LTCG). 2. Eligibility for exemption under Section 54 of the Income-tax Act. Detailed Analysis: Issue 1: Classification of Gains on Sale of Residential Flat The primary contention is whether the gains from the sale of the residential flat should be treated as Short Term Capital Gain (STCG) or Long Term Capital Gain (LTCG). The assessee claimed the flat was acquired on 25.04.2008 and sold on 05.10.2011, thus qualifying for LTCG. The Assessing Officer (AO) disagreed, stating the flat was acquired on 19.07.2009, making the holding period less than 36 months, thus qualifying as STCG. The assessee argued that the holding period should be counted from 25.04.2008, when the allotment letter was transferred to her name, citing various judicial precedents and CBDT Circulars No. 471 and 672. These circulars indicate that the date of allotment, not the date of registration, is relevant for computing the holding period for capital gains tax purposes. The Tribunal found merit in the assessee's argument, referencing decisions from the Hon'ble Delhi High Court and Punjab & Haryana High Court, which support the view that the holding period starts from the date of allotment. Consequently, the Tribunal ruled that the gains should be treated as LTCG, allowing the benefit of indexed cost of acquisition from 2008. Issue 2: Eligibility for Exemption under Section 54 The second issue is whether the assessee is eligible for exemption under Section 54 of the Income-tax Act. The AO disallowed the exemption on the grounds that the capital gains were treated as STCG and that the investment was made in two flats. The Tribunal, having already classified the gains as LTCG, addressed the exemption claim. The Tribunal referenced the Hon'ble Karnataka High Court's decision in CIT vs. Jyothi K. Mehta, which held that the term "a residential house" in Section 54 should not be construed strictly in the singular form. The court ruled that the assessee is entitled to exemption even if the investment is made in more than one residential unit. Thus, the Tribunal directed the AO to allow the exemption under Section 54, as the investment in two flats does not disqualify the assessee from the benefit. Conclusion: The Tribunal allowed the appeal, ruling that: 1. The gains from the sale of the residential flat should be treated as Long Term Capital Gain. 2. The assessee is entitled to exemption under Section 54 of the Income-tax Act, even if the investment is made in two residential units. Order Pronounced: The appeal of the assessee is allowed, and the order was pronounced in the open court on 18/10/2018.
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