2017 (2) TMI 788 - AT - Income Tax

Gain on office unit (flat) sold - LTCG v/s STCG - computation of Holding period - Held that - Holding period should be computed from the date of issue of allotment letter. If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain. - Decided in favour of assessee

Issues Involved:
1. Classification of the capital asset as 'long term' or 'short term' based on the period of holding.
2. Determination of the starting point for the holding period of the capital asset.

Detailed Analysis:

1. Classification of the Capital Asset:
The primary issue in this appeal was whether the office unit sold by the assessee should be classified as a 'long term capital asset' or 'short term capital asset' under section 2(42A) of the Income-tax Act, 1961. The assessee argued that the asset was held for more than 36 months, qualifying it as a 'long term capital asset', while the Assessing Officer (AO) contended that the asset was a 'short term capital asset' since the agreement to sell was registered within 36 months of the sale date.

2. Determination of the Holding Period:
The AO computed the holding period from the date of registration of the agreement (24-04-2008) and concluded that the asset was a 'short term capital asset' when sold on 11-03-2011. The AO relied on the Supreme Court judgment in M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana, which held that the transfer of immovable property is effective only from the date of registration with the Sub Registrar.

The assessee, however, argued that the holding period should be computed from the date of allotment (11-04-2005) or alternatively from the date of signing the agreement to sell (28-12-2007). The assessee supported his claim with several judgments, including Madhu Kaul v. CIT, CIT v. K Ramakrishnan, and others, which held that the allotment date is relevant for computing the holding period.

Tribunal's Decision:
The Tribunal analyzed section 2(42A) of the Income-tax Act, which defines 'short term capital asset' as a capital asset held for not more than 36 months immediately preceding the date of transfer. The Tribunal noted that the term 'held' indicates the de facto possession of the asset rather than legal ownership.

The Tribunal referred to the Karnataka High Court's judgment in CIT vs A Suresh Rao, which clarified that for holding an asset, it is not necessary to have a registered deed of conveyance. The Tribunal also cited the Punjab & Haryana High Court's judgment in Madhu Kaul, which stated that the allotment letter confers a right to hold the property, and subsequent payments and possession are consequential acts.

The Tribunal concluded that the holding period should be computed from the date of the allotment letter (11-04-2005), making the holding period more than 36 months. Consequently, the office unit was classified as a 'long term capital asset', and the gain from its sale was taxable as Long Term Capital Gain.

Conclusion:
The Tribunal allowed the appeal, directing that the property sold by the assessee be treated as a 'long term capital asset' based on the holding period starting from the date of the allotment letter. The alternative issue raised by the assessee regarding the date of execution of the sale agreement was not adjudicated. The appeal of the assessee was allowed, and the order was pronounced in the open court.

← Previous Next →