2020 (4) TMI 779 - AT - Income Tax

Capital gains on sale of rights to a flat - STCG or LTCG - period of holding - Transfer u/s 2(47) - letter issued by the builder which recognizes the right of the assessee in the said property and the builder agree to reserve the property for allotment subject to certain stipulations and conditions including payment terms - HELD THAT - Upon perusal of the terms, we find that the said letter create right in favor of the assessee to get the allotment of the property in his name subject to certain terms and conditions as agreed upon between the assessee and the builder. The assessee has acquired certain rights of allotment in a specific property. These rights were created in assessee s favor, by the letter of builder issued on 14/10/2006. The subsequent letter dated 25/11/2006 as well as premises ownership agreement was nothing but improvement in the said rights of the assessee which were already created vide letter dated 14/10/2006. The assessee has sold these rights vide agreement dated 18/09/2010. Therefore, what was acquired by the assessee and what has ultimately been sold by the assessee is pari-materia the same. This being the case, there would be no occasion to consider the date of acquisition of the said right as 22/06/2010. The assessee, in our opinion, acquired the right on 14/10/2006 which was ultimately sold on 18/09/2010. Therefore, since the holding period of the same is more than 36 months, the resultant gains would be long-term capital gains in nature. Benefits of indexation would be available since financial year 2006-07. Alternative claim as made by the assessee u/s 54F - AR submitted that the assessee s deduction claim would fall u/s 54F and not u/s 54 since what has been sold is merely a certain right in the property. We find that the said facts were brought to the notice of Ld. CIT(A) also. Therefore, the alternative claim as made by the assessee u/s 54F would be admissible. The Ld. AO is directed to verify assessee s claim u/s 54F and recompute the income in terms of this order.

Summary

Issues Involved:
1. Determination of capital gains on the sale of rights to a flat as short-term or long-term.
2. Calculation of the period of holding the asset for capital gains tax purposes.
3. Eligibility for indexation benefit and reinvestment claim under Section 54 or 54F.

Issue 1: Determination of Capital Gains:
The appeal contested the order of the Commissioner of Income-Tax (Appeals) regarding the classification of capital gains from the sale of rights to a flat as "Short Term." The appellant argued that the asset was held for more than 36 months, qualifying for long-term capital gains. The appellant cited the date of booking, allotment, and sale to support the claim for long-term capital gains.

Issue 2: Calculation of Holding Period:
The Assessing Officer determined the gains as short-term capital gains due to the registration date of the agreement. The Income Tax Appellate Tribunal (ITAT) analyzed the documents related to the property transactions. The ITAT concluded that the rights were acquired on the booking date, not the registration date, making the gains long-term in nature. The ITAT considered the holding period from the booking date to the sale date for the capital gains calculation.

Issue 3: Eligibility for Indexation and Reinvestment Claim:
The appellant claimed indexation benefit and reinvestment under Section 54 or 54F. The ITAT found that the appellant acquired transferable rights in the property on the booking date, making the gains eligible for long-term capital gains treatment. The ITAT directed the Assessing Officer to verify the appellant's claim under Section 54F for reinvestment and adjust the income accordingly.

In the judgment, the ITAT analyzed the timing of acquisition and sale of rights to a flat to determine the nature of capital gains. The ITAT emphasized that the rights were acquired on the booking date, not the registration date, leading to the gains being classified as long-term. The ITAT allowed the appeal, granting the appellant the benefits of indexation and reinvestment under Section 54F. The ITAT's decision highlighted the importance of considering the actual acquisition date for determining the holding period and tax implications in such cases.