2016 (7) TMI 162 - HC - Income Tax

Capital gains on the transfer of plot of land - STCG or LTCG - Held that - The assessee-appellant held (owned) the property only upon the order being passed upon filing of the Consent Terms in Court on 11th March, 1988. The said land was sold on 29th November, 1988. Therefore it falls beyond the scope of long term capital gains and within the province of short term capital gain. Accordingly, we are of the view that the gains resulting from the sale of the said land in November 1988 would be a short term capital gain. - Decided in favour of the Revenue and against the assessee

Summary

Issues:
1. Determination of capital gains nature on the transfer of land.

Analysis:
The judgment by the Bombay High Court involved an appeal under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal related to Assessment Year 1989-90. The main issue revolved around whether the capital gains arising from the transfer of a plot of land should be considered short term or long term. The appellant claimed the gain was long term as they had held the land since 1980, while the Assessing Officer considered it short term as possession was acquired only after Consent Terms were filed in court.

The appellant entered into an agreement in 1980 for leasehold rights of the land, followed by Consent Terms in 1988, and eventually sold the land resulting in capital gains. The CIT(A) initially allowed the gain to be treated as long term capital gain, but the Tribunal demanded it be treated as short term. The appellant argued that the property was effectively held since the original agreement in 1980, making it eligible for long term capital gain benefits under Section 54 of the Act. However, the court found that ownership and possession were acquired only after the Consent Terms were filed, leading to the gains being considered short term.

The court referred to a previous case where it was held that if a sale of property occurs within a short period of acquiring ownership, the gains are short term. Applying this principle to the current case, the court determined that the property was held only after the Consent Terms were filed, making the gains short term. As a result, the substantial question of law was answered in favor of the Revenue, dismissing the appeal with no costs awarded.