2019 (5) TMI 294 - AT - Income Tax

Nature of capital gain - long term vs short term - transfer of development rights acquired by assessee in pieces of land - execution of registered document happen subsequently - period of holding of rights - HELD THAT - Whatever rights the assessee had acquired in the said pieces of land start from 1997, on which date for one of the transactions the amount was also paid through cheque of ₹ 6 lakhs. The said consideration of ₹ 6 lakhs was recognized in the later registered document which establishes the case of assessee of having acquired the rights way back in 1997. Accordingly, the gain arising on transfer of development rights in the hands of assessee is to be assessed as Long term capital gains . Denying deduction u/s 54EC - as per AO amount which was put into capital gains account has been transferred to some person - HELD THAT - We hold that the assessee is entitled to the claim of deduction under section 54ED of the Act on account of investment in Bonds issued by Rural Electrification Ltd. and 54F of the Act on account of investment in construction of joint family property. The said claim of assessee cannot be rejected by the Assessing Officer observing that the amount which was put into capital gains account has been transferred to some person. The explanation of assessee in this regard was that the amount has been transferred to joint bank account of his brothers and himself, wherein the money was utilized for construction of joint ancestral house. We thus, direct the Assessing Officer to allow the said claim also in the hands of assessee. - Decided in favour of assessee.

Summary

Issues:
Assessability of gain arising on sale of plot as 'Short term capital gains' or 'Long term capital gains'; Allowance of deduction under section 54EC; Consideration of expenditure incurred by purchasers in total consideration.

Analysis:
1. Assessability of Gain: The primary issue in the appeal is whether the gain from the sale of the plot should be assessed as 'Short term capital gains' or 'Long term capital gains'. The assessee claimed the gain to be long term based on possession obtained in 1997 and subsequent agreements. The Assessing Officer contended that the holding period was less than 36 months. The CIT(A) upheld the short term capital gains classification citing the registered deed executed in 2004 and the transfer agreement in 2006. However, the ITAT held in favor of the assessee, emphasizing the rights acquired in 1997, leading to the gain being assessed as 'Long term capital gains'.

2. Deduction under Section 54EC: The assessee also sought deduction under section 54EC of the Act. The ITAT directed the Assessing Officer to allow this claim, supporting the investment in Bonds issued by Rural Electrification Ltd.

3. Consideration of Expenditure: Another aspect was the consideration of expenditure incurred by purchasers and agreed to be adjusted in total consideration by the assessee. The ITAT directed the Assessing Officer to allow this claim as well, noting that the amount transferred to a joint bank account was utilized for the construction of a joint ancestral house.

Overall, the ITAT allowed the grounds of appeal raised by the assessee, concluding that the gain should be treated as 'Long term capital gains' and directing the allowance of deductions claimed under section 54EC and for the expenditure incurred by purchasers. The appeal was thus allowed in favor of the assessee.