2012 (12) TMI 407 - AT - Income Tax

Holding period of property - LTCG / STCG - While calculating period of holding of property which date is to be consider as date of acquisition - Date of purchase agreement or date of final payment/date of registration or from date of possession - Held that - As the year of acquisition of the flat has to be considered as the year in which assessee had taken possession of the flat after making part payments by instalments as the assessee became owner of the flat u/s 53A of the transfer of property right Act. The assessee got ownership rights from the date the assessee got possession of the flat which was 20th Dec. 2000. Following the decision in case of Madathil Brothers (2007 (10) TMI 234 - MADRAS HIGH COURT) that holding period has to be reckoned from the date of possession of the property. Therefore, AO has to take the holding period from the date of possession after necessary verification of possession date. Appeal decides in favour of revenue & remand back to AO.

Summary

Issues:
Nature of income received by the assessee from the sale of property - short term capital gain or long term capital gains.

Analysis:
The appeal by the revenue was against the order of CIT(A) for the assessment year 2006-07, specifically disputing the nature of income received by the assessee from the sale of a flat. The Assessing Officer (AO) noted that the assessee declared long term capital gains from the sale of the flat, which had been booked in 1994 and sold in 2005. The AO raised concerns about the holding period of the flat and whether the gain should be treated as short term or long term capital gain. The AO observed discrepancies in the dates of agreements and payments made by the assessee, leading to the conclusion that the holding period was short, resulting in short term capital gain treatment.

The assessee contended that the holding period should be counted from the date of the first agreement in 1997, as all rights in the property were acquired at that time. The assessee also provided evidence of taking possession of the flat in 2000, which the AO had overlooked. The CIT(A) agreed with the assessee that the holding period should be reckoned from the possession date in 2000, leading to the capital gain being considered as long term. The revenue appealed this decision before the Tribunal.

During the Tribunal proceedings, the assessee reiterated the acquisition of rights in the flat from the first agreement in 1997 and explained the subsequent agreement in 2004 was for stamp duty purposes. The revenue argued that possession was taken only after full payment in 2004, justifying the short term capital gain treatment. The Tribunal analyzed the conflicting findings of the AO and CIT(A) regarding possession and concluded that verification of possession date was necessary. It was determined that the holding period should be reckoned from the possession date in 2000, aligning with the long term capital gain treatment.

The Tribunal referred to relevant judgments supporting the view that the holding period should be calculated from the possession date, emphasizing that ownership rights were acquired upon possession. The Tribunal upheld the decision that the holding period should start from the possession date in 2000, resulting in the capital gain being treated as long term. The revenue's appeal was allowed in part for statistical purposes, acknowledging the revised treatment of capital gains based on the correct holding period calculation.