2018 (10) TMI 579 - AT - Income Tax

Entitled to claim long term capital gain on transfer of rights in the Flats - Deduction u/s 54 against capital gains arising out of sale of flats - Legal right over property - AO in his assessment order mentioned that the flats were not in habitable condition in any manner and the assessee had not even got the possession letter from the builder before transfer/ relinquishment and therefore, the properties in question were not residential units on the date of transfer - Held that - Read in the context of the definitions of capital asset and transfer the section carries no words of limitation to the effect that a transfer effected by a person backed up with a title passed on under a registered deed alone could be considered as resulting in a profit or gain assessable under section 45. All that the section looks at is the transfer of a capital asset held as understood under section 2(14) of the Act and under section 2(47) of the Act. AO failed to appreciate that the assessee has acquired a legal right in the capital asset in terms of Section. 2(47) of the Act r.w.s. 53A of the Transfer of Property Act 1882. The assessee was having legal right over the property and for this we have to note the definition of capital asset where the word used is held in the Section 2(14) read with explanation to Section 48 of the Act clearly depicts rights of the assessee over a capital asset and also specifies the benefit of indexation to be granted to the assessee on the basis of payments made by her for acquiring the said capital asset. In the instant case of the assessee, the right over the property was held by the assessee for the period of 36 months, therefore, on transfer of these properties the long term capital gain has been offered by the assessee. The property is acquired is long term capital assets, therefore, the right over the property in question enjoyed by the assessee, the sale of the said property, the consideration was necessarily in the nature of Long Term Capital Gain. At the best, the date of provisional allotment letter dated 30.05.2007 for Upohar Apartment, Kolkata and in respect of two flats jointly held by her with four other persons at Diamond City South, Kolkata, the letter of provisional allotment issued by the builder on 11.04.2007,is to be considered as date of acquisition of right in the property. Thus assessee is entitled to claim long term capital gain on transfer of these Flats. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 54 of the Income Tax Act.
2. Admission of fresh evidence by the CIT(A) and alleged contravention of Rule 46A of the I.T. Rules, 1962.

Issue-wise Detailed Analysis:

1. Eligibility for deduction under Section 54 of the Income Tax Act:

The assessee, a school teacher and administrator, declared long-term capital gains on the sale of flats and claimed a deduction under Section 54 of the Income Tax Act. The Assessing Officer (AO) disallowed the exemption on the grounds that the flats were not occupied by the assessee, were not habitable, and the assessee did not disclose any income from these flats. The AO noted that the flats were provisionally allotted and later relinquished for consideration, but the assessee did not fulfill the conditions for claiming the exemption under Section 54, as the flats were not used for residential purposes and the assessee owned more than two house properties at the time of transfer.

The CIT(A) upheld the AO's decision, stating that the transactions were designed to evade tax and the gains from the transfer of provisional allotment rights could not be considered long-term capital gains eligible for deduction under Section 54.

Upon appeal, the Tribunal considered the arguments presented by the assessee's counsel, who emphasized that the term 'held' in the context of capital gains does not require ownership as per the Transfer of Property Act, but rather beneficial ownership from the date of allotment. The Tribunal referred to the CBDT Circular No. 471 and the judgment in the case of M/s. Anindya Dutta, which supported the assessee's claim that the date of allotment should be considered the date of acquisition, and the gains should be treated as long-term capital gains.

The Tribunal concluded that the assessee had acquired legal rights over the flats from the date of allotment, which were held for more than 36 months, thus qualifying as long-term capital assets. Consequently, the assessee was entitled to claim the exemption under Section 54, and the addition of ?22,87,429/- was deleted.

2. Admission of fresh evidence by the CIT(A) and alleged contravention of Rule 46A of the I.T. Rules, 1962:

The Revenue's appeal contended that the CIT(A) admitted fresh evidence in contravention of Rule 46A. However, during the hearing, the Revenue's representative acknowledged that the CIT(A) had called for a remand report from the AO regarding the additional evidence submitted by the assessee. The remand report was duly considered by the CIT(A) along with the assessee's rejoinder.

The Tribunal noted that both parties agreed that the additional evidence was sent to the AO for verification, and a proper remand report was obtained and considered. Therefore, there was no violation of Rule 46A. Consequently, the Revenue's appeal on this ground was dismissed.

Conclusion:

The appeal filed by the assessee was allowed, granting the exemption under Section 54, while the Revenue's appeal regarding the admission of fresh evidence was dismissed. The Tribunal's order was pronounced in the open court on 31.07.2018.