2019 (4) TMI 1479 - AT - Income Tax

Capital gain - LTCG OR STCG - part performance of contract - transfer of capital asset - vendors after receiving the entire sale consideration refused to execute sale deed - assessee had filed a suit for specific performance in Lok Adalat who directed the assessee to pay an amount to one of the vendors-Sri Boorugu Ramesh Babu and also directed all the vendors to execute sale deed or sale-cum-GPA - computation of period of holding of asset from date of payment of consideration or from date of GPA execution - HELD THAT - We find that when the assessee paid substantial amount in the F.Y. 2005-06 and the assessee is having interest on the property, in our opinion, the Assessing Officer is not justified in treating the sale proceeds received by the assessee out of the sale of land dated 12/07/2012 as a short term capital gain. In this case, the assessee has paid the entire sale consideration and the vendors are not ready to execute, then he filed a suit for specific performance and the matter has been referred to Lok Adalat. Before the Lok Adalat, the vendors and vendee agreed for the terms and conditions which were entered in F.Y. 2005-06 and accordingly sale-cum-GPA was executed, therefore the transaction took place in the F.Y. 2005-06 and not on the date of execution of sale-cum-GPA executed. Hon'ble Bombay High Court in the case of Amarjeet Thapar ( 2018 (12) TMI 1151 - BOMBAY HIGH COURT has observed that the assessee had entered into an agreement for purchase of the property in the year 1992. The sale deed could not be executed only because the appropriate authority refused to grant no objection certification and instead, ordered compulsory acquisition thereof. This order was declared as illegal and ab initio void by the High Court, the sale deed was ordered to be executed in favour of the assessee-petitioner, there is no reason for not to accept the assessee s contention that the execution of the sale deed by virtue of the judgment of the High Court would relate back to the original agreement to sale. The petitioner was thus entitled to claim the benefit of cost indexation from the said date. When the assessee has already paid more than 80% of the sale consideration, it cannot be find fault with the assessee as the assessee has performed his duty by paying almost all the sale consideration. It is the duty of the vendors to have executed the sale deed. Under these facts and circumstances of the case, we are of the opinion that the judgment of the Hon'ble Bombay High Court squarely applies to the facts of the present case. - Decided against revenue

Summary

Issues Involved:
1. Determination of whether the capital gains from the sale of property are to be treated as Long Term Capital Gains (LTCG) or Short Term Capital Gains (STCG).
2. The applicability of indexation benefits from the date of the oral agreement or the date of registration of the sale deed.
3. The legal recognition of the oral agreement and substantial payment made in the Financial Year (F.Y.) 2005-06.

Detailed Analysis:

1. Determination of Capital Gains as LTCG or STCG:

The primary issue revolves around whether the gains from the sale of property should be classified as LTCG or STCG. The assessee entered into an oral agreement in F.Y. 2005-06, paying more than 80% of the total consideration. The vendors did not execute the sale deed due to the increased property value. The dispute was settled by the Lok Adalat in 2012, directing the vendors to execute the sale deed after the assessee paid an additional amount. The Assessing Officer (AO) argued that since the final payment and possession occurred in 2012, the gains should be treated as STCG. However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal concluded that the substantial payment and the oral agreement in 2005-06 established the assessee's right to the property, thus qualifying the gains as LTCG.

2. Applicability of Indexation Benefits:

The second issue pertains to the date from which indexation benefits should be applied. The AO contended that the indexation should start from the date of the sale deed execution in 2012. Conversely, the assessee argued that indexation should begin from the date of the oral agreement in 2005-06, when a substantial payment was made. The Tribunal, relying on various judicial precedents, including the Bombay High Court's decision in Amarjeet Thapar Vs. ITO, held that the indexation should be applicable from the date of the oral agreement, recognizing the assessee's substantial interest in the property from that date.

3. Legal Recognition of the Oral Agreement and Substantial Payment:

The third issue involves the legal recognition of the oral agreement and the substantial payment made in F.Y. 2005-06. The AO's position was that the oral agreement did not constitute a complete contract since the full consideration was not paid, and possession was not taken until 2012. The Tribunal, however, found that the substantial payment (over 80%) in 2005-06 and the subsequent legal actions demonstrated the assessee's vested interest in the property. The Tribunal cited several cases, including CIT Vs. Tata Services Ltd., which established that rights acquired through substantial payments and agreements are recognized as capital assets. Consequently, the Tribunal upheld the CIT(A)'s decision, recognizing the oral agreement and substantial payment as the basis for treating the gains as LTCG.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the capital gains from the sale of the property should be treated as LTCG. The Tribunal emphasized the substantial payment made in 2005-06 and the legal precedents supporting the recognition of such payments and agreements as establishing a long-term interest in the property. The indexation benefits were also to be applied from the date of the oral agreement, aligning with the established judicial interpretations.