2020 (5) TMI 434 - AT - Income Tax

Deduction u/s 54F - Acquiring rights in property - period of holding of capital asset for the purposes of classification of capital gains is to be seen with reference to date of allotment of land or from the date of formal execution of sale deed for registration - as per assessee letter of allotment issued by BDA in respect of land parcel (Site no. 37) in question has given effective right to the assessee to assert its command on the asset which right is includible in the expression property for the purpose of s.2(14) - whether letter of allotment would give effective right over the capital asset pending execution of formal agreement spelling out all the exact terms and conditions for acquisition? - HELD THAT - Hon ble Bombay High Court in the case of PCIT vs. Vembu Vaidyanathan 2019 (1) TMI 1361 - BOMBAY HIGH COURT has taken note of CBDT circular no. 471 dated 15th October 1986 as well as CBDT circular 672 dated 16th Dec. 1993 and concluded that the assessee shall be deemed to have acquired rights in the property on the date of issue of allotment letter for the purposes of expression capital asset . Assessee in the instant case has not only been issued allotment letter, he has also made full payment to the authority concerned immediately thereafter. Thus, the asset is required to be held as long term capital asset even if the later date of payment is reckoned. Hence, the gains arising on sale of such asset has been correctly claimed as Long term capital gains. Consequently, all the benefits flowing from such gains would be entitled to the assessee. - Decided in favour of assessee.

Summary

Issues:
Challenge of revenue's rejection of capital gains as long term, Claim of benefit under section 54F, Interpretation of period of holding for capital asset, Validity of allotment letter in determining capital asset rights.

Analysis:
The appeal was filed against the CIT(A)'s order upholding the AO's decision on the nature of capital gains. The assessee claimed that the entire capital gains should be treated as long term, seeking benefit under section 54F. The AO treated the gains as short term, denying the exemption. The Tribunal heard arguments on the period of holding for the capital asset, specifically site no.37, to determine the nature of capital gains.

The assessee's counsel argued that the effective possession and rights over site no.37 were established since allotment in 2008, even though the registration deed was executed later in 2009. The revenue authorities contended that ownership rights accrued only upon registration, leading to short term gains. The Tribunal analyzed the legal position regarding the period of holding and the impact of the allotment letter on capital asset rights.

Referring to the wide definition of 'capital asset,' the Tribunal cited a Bombay High Court decision emphasizing that allotment letters confer rights in the property, even before formal agreements. As the assessee had received the allotment letter and made full payment promptly, the asset qualified as long term. The Tribunal distinguished a previous case cited by the revenue, noting changes in the definition of 'transfer' post that judgment, rendering it inapplicable to the current scenario.

Ultimately, the Tribunal allowed the appeal, acknowledging the gains as long term capital gains and granting the associated benefits to the assessee. The decision highlighted the significance of the allotment letter and prompt payment in determining the nature of capital gains.