2024 (6) TMI 646 - AT - Income Tax

Year of transfer of capital asset pursuant to the agreement to sale - whether it is short-term or long-term capital gain - HELD THAT - Transfer of booking rights contemplated in the agreement to sell dated 08.03.2008 was dependent upon the permission to be granted by the builder, which happened only on 02.05.2008 and thereby the transfer of booking rights would be completed only in AY 2009-10. We hold the transfer had indeed happened only in AY 2009-10. Hence, we direct the AO to delete the capital gain addition made in AY 2008-09 and convert the addition made in AY 2009-10 from protective basis to substantive basis. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Year of transfer of capital asset.
2. Classification of capital gain as Short Term Capital Gain (STCG) or Long Term Capital Gain (LTCG).

Summary:

Issue 1: Year of Transfer of Capital Asset
The core issue is determining the year of transfer of the capital asset pursuant to the agreement to sell. The assessee argued that the transfer occurred in AY 2009-10 when the final payment was received, and the builder transferred the booking rights. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] contended that the transfer took place in AY 2008-09 based on the agreement to sell dated 08.03.2008. The Tribunal found that the agreement to sell was conditional and cancellable, with the transfer contingent on the fulfillment of conditions, including the receipt of the full consideration and the builder's consent, which occurred in AY 2009-10. Thus, the Tribunal concluded that the transfer happened in AY 2009-10.

Issue 2: Classification of Capital Gain
The assessee declared the gain as Long Term Capital Gain (LTCG) in AY 2009-10, while the AO assessed it as Short Term Capital Gain (STCG) in AY 2008-09. The Tribunal noted that the transfer of booking rights was completed in AY 2009-10, making it a long-term capital gain. The Tribunal directed the AO to delete the capital gain addition made in AY 2008-09 and convert the addition made in AY 2009-10 from protective to substantive basis.

Key Findings:
- The agreement to sell dated 08.03.2008 was conditional and did not constitute a transfer.
- The final payment and builder's consent were received in AY 2009-10.
- The Tribunal relied on the Supreme Court decision in CIT Vs. Balbir Singh Maini and the Gujarat High Court decision in Ushaben Jayantilal Sodhan Vs. ITO, which supported the view that an agreement to sell does not constitute a transfer until conditions are fulfilled.

Conclusion:
The Tribunal held that the transfer of the capital asset occurred in AY 2009-10, and the gain should be classified as Long Term Capital Gain (LTCG). The appeal of the assessee was allowed, and the AO was directed to adjust the assessments accordingly.