2021 (4) TMI 16 - AT - Income Tax

Taxability of capital gain arising from sale of property - Gain on transfer of asset as short-term capital gain - Whether date of allotment of property which is relevant for the purpose of computing the holding period and not the date of registration of conveyance deed? - CIT(A) held that since the property was held by the assessee for a period of 16 months from the date of registration till the date of transfer, therefore, the property in question is short-term capital asset and profit on such transfer is short-term capital gain and the assessee is not entitled to any indexation benefit - HELD THAT - Coordinate Bench of the Tribunal in the case of Ranjana Bammi 2017 (8) TMI 338 - ITAT DELHI has held that for determining the taxability of capital gain arising from sale of property, it is the date of allotment of property which is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. The Hon ble Punjab Haryana High Court in the case of Mrs. Madhu Kaul vs. CIT 2014 (2) TMI 1117 - PUNJAB HARYANA HIGH COURT has held the mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter. The capital gain arising in that case was long-term capital gain. The Delhi Bench of the Tribunal in the case of Praveen Gupta 2010 (8) TMI 820 - ITAT DELHI going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word 'held' used in Section 2 (14) as well as Explanation to Section 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. The various other decisions relied on by assessee also supports his case to the proposition that for determining the taxability of capital gain arising from sale of property, it is the date of allotment of the property which is relevant for the purpose of computing the holding period and not the date of registration of conveyance deed. We hold that the asset in question is a long-term capital asset and the assessee is entitled to the benefit of indexation from the date of allotment/agreement. We set aside the order of the CIT(A) and direct the AO to accept the amount of long-term capital gain as worked out by the assessee. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Determination of the nature of capital gain (short-term vs. long-term).
2. Calculation of the holding period for capital asset.
3. Entitlement to indexation benefit.
4. Procedural correctness of the CIT(A)'s enhancement of income.

Issue-Wise Detailed Analysis:

1. Determination of the Nature of Capital Gain (Short-term vs. Long-term):
The primary issue was whether the gain from the sale of the property should be treated as short-term or long-term capital gain. The Assessing Officer (AO) and the CIT(A) treated the gain as short-term, based on the period between the registration of the conveyance deed and the sale of the property. The assessee contended that the date of allotment should be considered for determining the holding period, making it a long-term capital gain. The Tribunal supported the assessee's view, citing precedents that the date of allotment is crucial for determining the holding period, thus qualifying the gain as long-term.

2. Calculation of the Holding Period for Capital Asset:
The assessee argued that the holding period should start from the date of allotment of the property, not from the date of registration of the conveyance deed. The Tribunal agreed, referencing multiple judicial decisions, including CIT vs. K. Ramakrishna and Mrs. Madhu Kaul vs. CIT, which established that the allotment date is relevant for computing the holding period. The Tribunal concluded that the property was held for more than three years from the allotment date, thus qualifying it as a long-term capital asset.

3. Entitlement to Indexation Benefit:
The AO allowed indexation based on the dates of payment towards the property, while the assessee claimed indexation from the date of allotment. The Tribunal ruled in favor of the assessee, stating that indexation should be granted from the date of allotment or buyer’s agreement, as supported by various judicial precedents. This approach aligns with the principle that the right to the property is acquired on the allotment date, not the payment or registration date.

4. Procedural Correctness of the CIT(A)'s Enhancement of Income:
The assessee challenged the CIT(A)'s enhancement of income, arguing that it was procedurally incorrect and based on misinterpretation of the law. The Tribunal found that the CIT(A) erred in treating the transaction as a short-term capital gain and in denying the indexation benefit. The Tribunal set aside the CIT(A)'s order, directing the AO to accept the long-term capital gain computation as provided by the assessee.

Conclusion:
The Tribunal concluded that the property in question was a long-term capital asset, and the assessee was entitled to indexation benefits from the date of allotment. The CIT(A)'s order was set aside, and the AO was directed to compute the capital gain as long-term, allowing the indexation benefit accordingly. The appeal filed by the assessee was allowed, and the decision was pronounced in the open court on 31.03.2021.