2016 (8) TMI 1048 - AT - Income Tax

Industrial gala sold - taxation as STCG or LTCG - consequent deduction under section 54EC - Held that - It is an undisputed fact from the perusal of the record that, assessee had acquired the industrial gala by way of registered sale agreement dated 27.03.1994 for a total consideration of ₹ 6,90,000/-. As per the payment of demand schedule, the entire payment of ₹ 8,74,000/- including the sale consideration as well as other outgoings was to be done upto financial year 1998-99. The entire payment as per the agreement was in fact made before financial year 1998-99. Occupation certificate was also issued on 10.03.1998. Thus, the property was not only complete but also occupation certificate was issued. It has been submitted by the assessee that, only for the maintenance purpose, the keys were handed over to the builder with whom the contract for maintenance was signed for the period of 3 years which later on was not renewed. When the builder was unable to cooperate with the maintenance, the keys were taken back by the assessee on 01.01.2005. On these facts, it cannot be held that the effective date of ownership and right in the property in the assessee should be reckoned from 01.01.2005, that is, when the keys were given by the builder to the assessee. In fact, when the registered sale agreement was executed on 27.03.1994, the assessee had acquired the right in the property and such right got further fortified by the fulfillment of the covenants in the agreement by making the payment as per the time schedule. This further the possession was also given by issuance of occupation certificate on 10.03.1998. Thus, in all the aspect, the assessee not only became the owner of the property but also had all the rights in the said property much prior to 01.05.2005 in fact even prior to financial year 1998-99. Mere handing over the keys by the builder to the assessee does not in any manner prejudice or jeopardized the assessee s right in the property when the builder has received the full consideration in FY 1998-99 and handed over the property with all rights and possession and was merely caretaker of the property. Thus, on the facts of the case, we hold that the assessee not only had right in the property for more than 3 years, but also was actually owner of the property, therefore, the sale of the property in the year 2005 has to be treated as sale of long-term capital assets and gain has to be assessed as long-term-capital-gain and the computation of long-term-capital-gain as shown by the assessee has to be accepted. Once the computation of LTCG is being accepted then consequently deductions will follow. - Decided in favour of assessee.

Summary

Issues Involved:
Determining whether the capital gain arising from the sale of an Industrial Gala should be treated as Short Term Capital Gain (STCG) or Long Term Capital Gain (LTCG) for the assessment year 2006-07.

Analysis:
1. The appeals were filed against the orders passed by the Ld. CIT(Appeals)-8, Mumbai regarding the assessment under section 143(3) r.w.s. 254 for the assessment year 2006-07. The issue in question was whether the capital gain arising from the sale of an Industrial Gala should be treated as STCG or LTCG.

2. The original assessment treated the gain as LTCG, but the AO later re-assessed it as STCG applying section 50C. The AO considered the sale consideration to be higher than claimed by the assessee, resulting in a higher capital gain. The matter was referred to the Valuation Officer, who valued the property lower than the AO's assessment. The issue was then appealed before the Tribunal for further examination.

3. The AO's contention was that the assessee only obtained final possession of the property in 2005, even though the occupation certificate was obtained in 1998. The AO argued that possession was a key factor in determining the nature of the capital gain. The Tribunal directed the AO to re-examine the issue, focusing on the occupation certificate obtained from the Bombay Municipal Corporation.

4. The CIT(A) upheld the AO's decision, stating that the date of acquiring ownership through a registered deed was crucial, not just the possession date. The CIT(A) dismissed the appeal, affirming the AO's order.

5. The assessee argued that ownership rights were acquired through a registered sale agreement in 1994, and possession was received in accordance with the agreement in 1998. The keys were handed over in 2005 only for maintenance purposes, and the final payment was made in 1998-99, indicating full ownership.

6. The DR supported the CIT(A)'s decision, emphasizing the importance of the possession date in determining ownership.

7. The Tribunal analyzed the facts and concluded that the assessee had acquired ownership rights in the property well before 2005. The possession date did not alter the fact that the assessee had fulfilled all obligations and acquired ownership rights much earlier. Therefore, the property sale should be treated as LTCG, allowing for deductions under section 54EC.

8. A similar issue in another appeal for the same assessment year was resolved in favor of the assessee based on the findings in the first appeal.

9. Consequently, both appeals of the assessee were allowed, and the capital gain from the sale of the Industrial Gala was treated as LTCG for the assessment year 2006-07.