2022 (4) TMI 226 - AT - Income Tax

Gain arising out of car parking spaces - LTCG or STCG - HELD THAT - In the agreement entered into by the assessee with the builders, M/s Dosti Corporation makes it clear that the sparking space No.176 was attached to the flat and therefore, for all purposes, it is part and parcel of the flat in question. So there is no question of treating the parking space No.176 independent of the flat and as a natural corollary, capital gain on sale of flat is long term capital gain which equally applies to the parking space No.176 also. So treating the parking space as distinct from the flat so as to treat the capital gain on sale as short term capital gain is totally unjustified. Objection of the assessing officer that the partnership firm in which the assessee is a partner has, has instead of debiting the account of the assessee, shown the amount under the head Car Parking Space at Sewree A/c has been explained by the assessee that it was an accounting mistake which was subsequently rectified in FY 2012-13 Therefore, respectfully following the judgment in the case of The Nav Nirman Cooperative Group Housing Society Ltd vs A.K. Murarka Ors. 2010 (10) TMI 1233 - DELHI HIGH COURT we hold that the capital gain arose on sale of parking space No.176 is a long term capital gain in the form of improvement of asset. Other two car parking areas - We find that the assessing officer has recorded a clear finding that the assessee himself has accounted the assets in different entities; therefore, the assets are independent of the flat and is distinguishable from the cost of improvement. Further, the parking spaces can be sold and purchased to and from the members of the society independently - as per the books of the firm in which the assessee is a partner, the car parking spaces were transferred to the assessee in the financial year 2012-13 only. Therefore, in our considered opinion, the capital gain arising from the sale of these two car parking spaces is only Short Term Capital Gain . In this view of the matter, we have to necessarily uphold the finding of the CIT(A) that the parking spaces are independently identifiable asset on different dates, the capital gain arose from sale of these two parking spaces is Short Term Capital Gain . AO has rightly assessed the gain as Short term capital gain in the case of other two parking spaces. This ground of appeal is partly allowed. Once the gain arising out of car parking spaces is held as Short Term Capital Gain, then the amount being consideration attributable to the car parking spaces be reduced from the sale consideration of the flat for computing long term capital gain - We find merit in the argument of the assessee. The assessing officer is directed to exclude the amount pertaining to; two other parking spaces from the sale value of the asset for computation of long term capital gain. Ground 2 of the assessee is allowed.

Summary

Issues:
1. Treatment of car parking spaces as separate assets for capital gains computation.
2. Classification of capital gain on sale of car parking spaces as short term or long term.

Issue 1: Treatment of car parking spaces as separate assets for capital gains computation

The appellant contested the Commissioner of Income Tax (Appeals)'s decision to treat car parking spaces as distinct assets from the residential flat, leading to short term capital gains assessment. The appellant argued that the car parking spaces should be considered part of the flat for capital gains computation. The assessing officer considered the parking spaces as short term assets due to the period of ownership before sale. The appellant cited legal precedents to support the integration of parking spaces with the flat. The Tribunal examined the purchase agreements and financial records, concluding that one parking space was integral to the flat, warranting long term capital gain treatment. However, the other two parking spaces were deemed independent assets, subject to short term capital gains assessment.

Issue 2: Classification of capital gain on sale of car parking spaces as short term or long term

The Tribunal analyzed the purchase agreements to determine the relationship between the parking spaces and the flat. One parking space was found to be inseparable from the flat, qualifying for long term capital gain treatment. In contrast, the other two parking spaces were considered separate assets, leading to short term capital gain classification. The Tribunal upheld the Commissioner's decision regarding the classification of the parking spaces based on their integration with the flat and the timing of ownership transfer. The appellant's alternative claim to reduce the sale consideration of the flat by the parking spaces' value for long term capital gain computation was accepted by the Tribunal.

In conclusion, the Tribunal partially allowed the appellant's appeal, recognizing one parking space as part of the flat for long term capital gains and treating the other two spaces as independent assets for short term capital gains assessment. The Tribunal directed the assessing officer to exclude the value of the two separate parking spaces from the flat's sale consideration for long term capital gain calculation.