2018 (7) TMI 576 - AT - Income Tax

Exemption u/s 54 entitlement - gain is long term capital gain and reinvestment happened within the stipulated time - Held that - It is not in dispute that the said allotment letter conferred right on the assessee to nominate any other person in her stead. The said right was subsequently transferred by the assessee in favour of Mrs Nitu Chowdhury and Mr Santosh Kr. Chowdhury on 10.12.2013 . This is nothing but a transfer of nominees in the subject mentioned property. There was no deed of conveyance executed either in favour of the assessee or in favour of Mrs Nitu Chowdhury and Mr Santosh Kr. Chowdhury. Section 2(14) of the Act clearly stipulates that right in a property is a capital asset. Since this right has been acquired by the assessee pursuant to allotment letter dated 12.4.2008 and the same has been held by the assessee up to 9.12.2013 (i.e for more than three years), the gain arose pursuant to such transfer would have to be construed only as long term capital gain, which has been rightly considered by the ld CIT-A. See VINOD KUMAR JAIN VERSUS COMMISSIONER OF INCOME TAX 2010 (9) TMI 850 - PUNJAB AND HARYANA HIGH COURT It is not in dispute that the assessee had duly reinvested the sale consideration in new property proposed to be purchased for ₹ 3,70,00,000/- and out of which ₹ 2,33,14,159/- was paid on 10.12.2013 itself ( i.e the date of agreement). Hence the resultant gain is long term capital gain and since the reinvestment had happened within the stipulated time, the assessee would be entitled for exemption u/s 54 of the Act. - Decided against revenue

Summary

Issues:
1. Justification of granting exemption u/s 54 of the Income Tax Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Kolkata arose from a decision by the Commissioner of Income Tax (Appeals) regarding the grant of exemption under section 54 of the Income Tax Act for the Assessment Year 2014-15. The primary issue was whether the Commissioner was justified in granting the exemption in the given circumstances. The case involved an individual deriving income from capital gains and other sources. The individual, along with a co-owner, received an allotment offer letter for a property and subsequently sold it, reinvesting the sale consideration in another property. The Assessing Officer (AO) contended that the property was acquired by the individual only on a later date, resulting in short-term capital gains. Consequently, the claim for deductions under sections 54/54F of the Act was deemed ineligible, leading to an addition in the assessment.

The individual argued that the right to the property was acquired earlier, and the transfer should be considered from that date. The AO, however, based the assessment on the provisions of the Act defining transfer and possession. On appeal, the Commissioner observed that the individual and her co-owner had acquired the right to the property much earlier, and the subsequent transfer constituted long-term capital gains. The Commissioner relied on legal precedents and the definition of Capital Asset under the Act to support this interpretation. The Commissioner directed the AO to grant exemption under section 54 of the Act, considering the gain as long-term capital gain.

During the Tribunal hearing, the Departmental Representative (DR) supported the AO's order, emphasizing the undisputed facts of the case. The Tribunal noted that the right in the property was acquired through the initial allotment letter, and the subsequent transfer was a disposition of nominees without a deed of conveyance. Relying on legal interpretations and precedents, including a decision of the Punjab & Haryana High Court, the Tribunal upheld the Commissioner's decision. The Tribunal concluded that the gain should be treated as long-term capital gain, making the individual eligible for exemption under section 54 of the Act.

In summary, the Tribunal dismissed the revenue's appeal, affirming the Commissioner's decision to grant exemption under section 54 of the Income Tax Act based on the interpretation of the acquisition and transfer of the property as long-term capital gains. The case highlights the importance of the timing of property acquisition and transfer in determining the tax treatment of capital gains and eligibility for exemptions under the Act.