2019 (7) TMI 27 - HC - Income Tax

LTCG v/s STCG - sale of industrial sheds - the assessee was put in possession of the sheds soon after it was allotted - date of allotment or date of registration is relevant for period of holding - CBDT Circular No.471, dated 15.10.1986 - HELD THAT - Our view is strengthened by the decision of the Karnataka High Court in the case of Income Tax Officer Ward 6(1) vs. R.Sathyanarayana, 2007 (12) TMI 468 - KARNATAKA HIGH COURT wherein, the Court took note of the fact that the assessee was put in possession of the property in 1992 and was enjoying the property as that of an absolute owner except to fulfill the terms and conditions of the lease-cum-sale deed. Assessee was enjoying the property as an owner and that he was put in possession of the property in terms of the agreement and such possession has to be treated as if he was enjoying the property under the part performance of the contract as defined under Section 53A of the TP Act. Thus, the Court held that if the assessee was enjoying the property under the provisions of the TP Act, it has to be considered the date of ownership from the date on which he was put in possession of the property. Accordingly, the Court held that the transaction has to be treated as a long term capital gains, as the assessee was enjoying the property for more than 36 months. We note from the circular is that the Board held that the date of allotment of the flat should be reckoned for the purposes of computing the capital gain. We would be well justified in applying the said decision of the Board to the case on hand also, though the present case does not relate to a residential accommodation. In any event, the terms and conditions of the agreement are more or less similar and both are wholly owned Government of Tamil Nadu Undertakings which have allotted the properties, that is, in the case of the assessee which has been allotted by the SIDCO and in the circular issued by the Board, it is an allotment by the Delhi Development Authority. Order passed by AO treating the industrial sheds as a short-term capital asset is incorrect and it should be treated as a long term capital asset and the gains arising therefrom should be assessed as low tax effect. - Decided in favour of the appellant/assessee.

Summary

Issues Involved:
1. Assessment of Short Term Capital Gains vs. Long Term Capital Gains.
2. Interpretation of "held" in Section 2(42A) of the Income-tax Act.
3. Application of Section 2(47)(v) of the Income-tax Act regarding transfer.

Issue-wise Detailed Analysis:

1. Assessment of Short Term Capital Gains vs. Long Term Capital Gains:
The primary issue was whether the capital gains from the sale of two industrial sheds should be treated as short-term or long-term capital gains. The assessee argued that the gains should be classified as long-term based on the allotment date of the sheds (11.08.1988), while the Revenue contended that the sheds were only legally acquired on the date of the sale deed (11.01.1996), thus making the gains short-term.

2. Interpretation of "held" in Section 2(42A) of the Income-tax Act:
The Court examined the definition of "short-term capital asset" under Section 2(42A) of the Act, which states that a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer qualifies as a short-term capital asset. The Court emphasized the significance of the term "held" rather than "purchased" or "owned," indicating that the period of holding starts from the date the assessee was put in possession of the property, i.e., 11.08.1988.

3. Application of Section 2(47)(v) of the Income-tax Act regarding transfer:
The Court also considered Section 2(47)(v) of the Act, which includes any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract as a transfer. The Court noted that the assessee was in possession of the sheds since 1988 and had fulfilled all conditions of the lease-cum-sale agreement, thus holding the property under part performance of the contract as defined under Section 53A of the Transfer of Property Act, 1882.

Conclusion:
The Court concluded that the assessee had been holding the property since the date of allotment (11.08.1988). Therefore, the capital gains arising from the transfer of the sheds should be treated as long-term capital gains. The Court rejected the reliance on the Karnataka High Court's decision in CIT vs. V.V.Mody, as it was rendered before the insertion of sub-Clause (v) to Section 2(47) of the Act. The Court supported its decision by referring to similar cases where possession under part performance of a contract was considered for determining the holding period.

Judgment:
The appeal was allowed, and the substantial questions of law were answered in favor of the appellant/assessee. The Court held that the industrial sheds should be treated as long-term capital assets, and the gains arising from their transfer should be assessed as long-term capital gains.