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2017 (11) TMI 1233 - AT - Income TaxEligible for exemption u/s 54 - denial of claim as long term capital gain is not on account of sale of residential house but from sale of right in the property - whether the gain in question is long term capital gain or short term capital gain? - Held that - In the present case, admittedly, the letter of allotment was issued in favour of the assessee on 26.11.2006 and agreement was entered into on 21.08.2012. Further agreement to sell the said property was entered into on 27.08.2012. Therefore, the Ld. CIT(A) has rightly, held the gain as long term gain by computing the holding period from the date of allotment of letter and not from the subsequent agreement. Hence, in the light of the cases discussed above, we uphold the findings of the Ld. CIT(A) and direct the AO to treat the gain in question as long term capital gain. As has been held by the Hon ble Bombay High Court in CIT vs. Tata Services Ltd. 1979 (1) TMI 26 - BOMBAY High Court the word property used in section 2(14) of the Act is a word of the widest amplitude and the definition has emphasized the same by the words of any kind . Therefore anything which can be called property will be included in the definition of capital asset. Therefore, in the light of the ratio of law laid down by the Hon ble High Court, we hold that the assessee s rights and interest whatsoever in the flat in question is an asset within the definition of section 2(14) of the Act. Hence, the Ld. CIT(A) has rightly held that the assessee s right to obtain property being capital asset gives rise to capital gain. No doubt, the asset sold by the assessee, is not a building or land appurtenant thereto and a residential house, the income of which is chargeable under the head income from house property within the meaning of section 54 of the Act so as to get benefit of the said section. Section 54F clearly says that where the assessee being an individual, earns capital gain from transfer of any long term capital asset, not being a residential house and purchases residential house within a period of one year before or two years after the date from the date of such transfer, the capital gain shall be dealt with in accordance with the provisions of this section. Since, we have held the transfer of asset by the assessee as transfer of long term capital asset and the consequential gain as long term capital gain and since the assessee has invested the said capital gain for purchasing residential house in the same year, the assessee fulfills all the conditions contemplated under section 54F of the assessee. Although it appears from the record that the assessee has not taken the alternative plea of section 54F in the first appeal before the Ld. CIT(A) however, the benefit of the provisions of this section cannot be denied on this ground. We accordingly, modify the order of the Ld. CIT(A) to that extent and allow the benefit u/s 54F of the Act to the assessee. Accordingly, we direct the AO to compute the claim of the assessee in accordance with the provisions of section 54F of the Act. Since, we have allowed the assessee s claim u/s 54F of the Act by holding the gain as long term capital gain we also direct the AO to allow the benefit of indexation of cost of acquisition from the date of each payment. - Assessee appeal allowed.
Issues Involved:
1. Eligibility for exemption under Section 54 or 54F of the Income Tax Act. 2. Classification of capital gain as long-term or short-term. 3. Entitlement to indexation of the cost of acquisition. 4. Charging of interest under Section 234B and 234D. 5. Initiation of penalty under Section 271(1)(c). Detailed Analysis: 1. Eligibility for Exemption under Section 54 or 54F of the Income Tax Act: The primary issue was whether the assessee was eligible for exemption under Section 54 or alternatively under Section 54F. The assessee had claimed exemption under Section 54 for the capital gain arising from the sale of an allotment letter for a flat. The Assessing Officer (AO) rejected this claim, considering the gain as a short-term capital gain since the period between the registration of the purchase agreement and the sale agreement was less than 36 months. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the gain was long-term but denied the exemption under Section 54, stating that the gain was from the sale of rights in the property, not a residential house. The Tribunal upheld that the gain was long-term, referencing the Bombay High Court's decision in CIT vs. Tata Services Ltd. and CIT vs. Vimal Lalchand Mutha, which considered the holding period from the date of allotment. The Tribunal concluded that the assessee was entitled to exemption under Section 54F, as the gain was from the sale of a long-term capital asset, and the proceeds were invested in a residential house. 2. Classification of Capital Gain as Long-Term or Short-Term: The Tribunal had to determine whether the gain was long-term or short-term. The AO considered the gain as short-term because the period between the registration of the purchase agreement and the sale agreement was less than 36 months. However, the CIT(A) and the Tribunal held that the holding period should be calculated from the date of the allotment letter, making the gain long-term. This decision was supported by precedents from the Bombay High Court and the Mumbai Tribunal, which recognized the date of allotment as the start of the holding period for under-construction properties. 3. Entitlement to Indexation of Cost of Acquisition: The assessee argued for indexation of the cost of acquisition from the date of each payment made towards the purchase of the flat. The Tribunal agreed with this view, allowing the benefit of indexation from the date of each payment, as opposed to the date of allotment. This decision was consistent with the jurisdictional tribunal's orders and supported by the facts that payments were made over several years. 4. Charging of Interest under Section 234B and 234D: The grounds related to the charging of interest under Sections 234B and 234D were deemed consequential. The Tribunal did not consider it necessary to adjudicate these grounds separately, implying that the interest would be recalculated based on the revised assessment of the capital gains. 5. Initiation of Penalty under Section 271(1)(c): The issue of penalty initiation under Section 271(1)(c) was considered premature by the Tribunal. Therefore, it was not adjudicated, leaving it open for future consideration based on the final assessment. Conclusion: The Tribunal partly allowed the appeals filed by the assessees, granting the benefit of long-term capital gain and exemption under Section 54F. The cross-appeal filed by the revenue was dismissed, as the Tribunal upheld the CIT(A)'s decision on the classification of the gain as long-term. The Tribunal directed the AO to compute the claim in accordance with Section 54F and allow the benefit of indexation from the date of each payment. The issues related to interest and penalty were not adjudicated, as they were deemed consequential or premature.
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