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2024 (8) TMI 280 - AT - Income TaxNature of Capital gain on sale of flat - LTCL as STCG - claiming indexation on payment basis - two small units were swapped for the bigger unit - Assessee claimed long term capital loss on the said property on the basis that same was held by him and his mother/grandmother from FY 2010-11 who subsequently assigned their rights in favour of the Assessee - order of the CIT(A) is that the swapping of two units T3-002 and T3-003 for one unit of T10-412 is considered as an exchange - AR submitted that benefit of indexation ought not to be denied to the Assessee merely because the allotment was finalized in 2018 as substantial payments were made by the Assessee before that time. HELD THAT - Faridabad Flat - We are of considered view that the transaction of gift is not regarded as transfer and accordingly capital gain arising from such transfer is not made chargeable to tax u/s 45. However this capital gain by implication is brought to tax at second stage when capital asset becoming the property of the assessee under gift is subsequently transferred by him by adopting the date and cost of acquisition of the capital asset of the previous owner as the date and cost of acquisition of the assessee. This precisely is the scheme of the Act as laid out in the relevant provision. Under similar circumstances in the case of Manjula J. Shah 2009 (10) TMI 646 - ITAT MUMBAI has held that for the purpose of calculation of indexed cost the index cost will be taken from the previous year in which the previous owner had become the owner of the property Delhi Flat - order of the CIT(A) is that the swapping of two units for one unit - As we take into consideration the agreement dated 29.10.2018 by which the builder Pureearth Infurastructure Ltd. along with promoter Basant Projects Ltd. had entered into agreement to sell it comes up that consequent to a settlement agreement executed between DCM Pureearth and Flat owner association on 10th May 2003 before the Hon ble Delhi High Court Pureearth had acquired development rights and Pureearth had further entered into a join development agreement with Basant Projects Ltd. and DCM for development and construction of the said land. The agreement has reference to earlier allotted apartments which meant the booking of space or area or unit or apartment already made to old flat buyers through erstwhile builders DCM and Pureearth in the project . It further comes up that the amount of Rs. 40, 36, 702/- already paid were adjusted as a consideration. Thus we are of the considered view that Pureearth was a successor in interest of Ansal-DCM properties and the builder-buyer agreement dated 29.10.2018 as executed was not a fresh agreement of allotment or an exchange deed but the assessee as a vendee and the Pureearth and Basant as promoters had only redefined and fortified their respective rights and corresponding liablites arising from the booking of a flat initiated with Ansal-DCM properties in the year 1989. CIT(A) had fallen in error in considering the acquisition of flat T10-412 as an exchange without appreciating that for a transaction to fall into the category of exchange there should be in existence properties which is not established and further builder-buyer agreement specifically mentions that due to change in the area and location the consideration amount is increased and the amount already paid for erstwhile units were adjusted. So the transaction is not at all of nature of exchange. Thus we are of the considered view that date of acquisition of property has to be reckoned from the date of allotment by Ansal-DCM properties in the year 1989. Thus the tax authorities have fallen in error in considering the income as short-term capital gain. Assessee appeal allowed.
Issues Involved:
1. Classification of Capital Gain (Long Term vs. Short Term) for Faridabad Flat. 2. Classification of Capital Gain (Long Term vs. Short Term) for Delhi Flat. 3. Consideration of cost of acquisition and holding period in case of gifted property. Issue-wise Detailed Analysis: 1. Classification of Capital Gain for Faridabad Flat: The Assessee, a resident of the USA, sold the Faridabad Flat for Rs. 1.95 Cr. The Assessee claimed a long-term capital loss based on the holding period starting from FY 2010-11, asserting that the property was held by his family members before being gifted to him. The Assessee relied on Explanation 1(b) to section 2(42A) and section 49(1) of the Income Tax Act, which consider the holding period and cost of acquisition of the previous owner in case of gifted property. The AO treated the gain as short-term, arguing that the property was only acquired upon possession in 2017, and the CIT(A) upheld this view, stating that the property was a short-term asset as it was possessed only from 2018. The Tribunal disagreed, citing the scheme of the Act and judicial precedents like DCIT Vs. Manjula J. Shah, concluding that the date and cost of acquisition should be reckoned from the previous owner, thus treating the gain as long-term. 2. Classification of Capital Gain for Delhi Flat: The Assessee booked a flat with Ansal DCM Properties in 1989. Due to project delays, Purearth Infrastructure took over in 2005, and the Assessee's sister transferred her booking to him in 2014. The Assessee swapped two smaller units for one bigger unit in 2018, and the builder adjusted the payments made for the smaller units towards the new unit. The AO and CIT(A) treated the gain as short-term, considering the swap as an exchange and the acquisition date as 2018. The Tribunal observed that the agreement with Purearth was not a fresh allotment but a continuation of the original booking from 1989. The Tribunal held that the date of acquisition should be from the original booking date in 1989, thus treating the gain as long-term. 3. Consideration of Cost of Acquisition and Holding Period in Case of Gifted Property: The Assessee argued that the cost and holding period of the previous owner (family members) should be considered for computing capital gain, as per sections 2(42A) and 49(1) of the Act. The AO and CIT(A) did not allow this, treating the property as acquired only upon possession. The Tribunal upheld the Assessee's view, emphasizing that the scheme of the Act allows for the holding period and cost of the previous owner to be considered in case of gifted property, thereby treating the gain as long-term. Conclusion: The Tribunal allowed the appeal, recognizing the transactions as long-term capital gains based on the original booking dates and the provisions of the Income Tax Act related to gifted properties. The orders of the AO and CIT(A) were overturned, and the Assessee's grounds were accepted.
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