2016 (8) TMI 60 - AT - Income Tax

Exemption u/s 54 - Transfer u/s 2(47) - whether the handing over of the possession of the property is vital to decide the transfer in term of the provision of Section 2(47) of the Act so as to decide whether the property is held as long term asset or short term asset? - Held that - As in the case of the assessee, who entered into agreement to sell dated 07-01-2011 and in this agreement a specifically mentioned Clause 2(b) states that the possession of the flat was to be given to the purchaser in the next 10/30 days and eventually the possession of the said flat was granted on 14-05-2011 with the mutual consent. Reckoned from the date of possession i.e. 14-05-2011 the assessee is entitled for treatment of sale of flat as long term and capital gain will be treated as long term capital gain because the property was acquired by assessee s father on 16-04-2008 and assessee handed over the possession to the purchaser only on 14-05-2011, it means the holding period is more than thirty six months. The assessee has invested a sum of ₹ 89,22,500/- in purchase of new flat, the proceeds out of sale of the flat. In our view the assessee is entitled for deduction u/s 54 of the Act and assessment of this transaction is to be made in assessment year 2012-13 and not in assessment year 2011-12. We direct the AO accordingly. Appeal of the assessee is allowed partly in favour of assessee.

Summary

Issues Involved:
1. Admissibility of additional grounds of appeal.
2. Determination of the nature of capital gains (short-term vs. long-term).
3. Correct assessment year for taxation of capital gains.
4. Entitlement to deduction under Section 54 of the Income Tax Act.
5. Proper determination of capital gains considering tenancy rights.

Issue-Wise Detailed Analysis:

1. Admissibility of Additional Grounds of Appeal:
The appellant filed revised grounds of appeal, including an additional ground stating that the transfer of the flat did not occur in the previous year relevant to the impugned assessment year. The Tribunal admitted this additional ground, referencing the Supreme Court’s decision in "National Thermal Power Company vs. CIT" and the Bombay High Court’s decision in "Ahmadabad Electricity Company Ltd. vs. CIT." The Tribunal noted that the facts relating to the transfer of the asset were already on record, and no further investigation was necessary.

2. Determination of the Nature of Capital Gains:
The core issue was whether the sale of the flat resulted in short-term or long-term capital gains. The Assessing Officer (AO) determined it as short-term capital gain, citing that the property was held for less than 36 months (from 16/04/2008 to 07/01/2011). However, the appellant argued that the transfer occurred on 14/05/2011, when possession was handed over, thereby holding the property for more than 36 months, qualifying it as long-term capital gain.

3. Correct Assessment Year for Taxation of Capital Gains:
The Tribunal examined whether the transfer of the flat occurred in the assessment year 2011-12 or 2012-13. The appellant contended that the transfer was completed on 14/05/2011, making the relevant assessment year 2012-13. The Tribunal agreed, noting that the possession date is crucial for determining the transfer under Section 2(47) of the Act. The Tribunal referenced decisions in "Azad Zabarcgabd Bhandari Vs ACIT" and "ACIT Vs Mrs. Geetadevi Pasari," which emphasized the importance of possession in determining the transfer date.

4. Entitlement to Deduction under Section 54 of the Income Tax Act:
The appellant claimed a deduction under Section 54 for investing in a new residential house. The AO denied this, considering the gains as short-term. However, the Tribunal, recognizing the gains as long-term, allowed the deduction under Section 54, as the appellant invested ?89,22,500 in a new flat.

5. Proper Determination of Capital Gains Considering Tenancy Rights:
The AO initially assessed the capital gains without assigning any cost towards the tenancy rights surrendered. The Tribunal observed that the appellant’s father converted his tenancy rights into ownership by paying a specified sum and subsequently gifted the flat to the appellant. The Tribunal directed the AO to consider the holding period from the date the appellant’s father acquired ownership (16/04/2008) to the date possession was handed over (14/05/2011), affirming it as long-term capital gain.

Conclusion:
The Tribunal concluded that the sale of the flat resulted in long-term capital gains, eligible for deduction under Section 54, and should be assessed in the assessment year 2012-13. The appeal was partly allowed, directing the AO to reassess the transaction accordingly. The order was pronounced in the open court on 22/07/2016.