2014 (2) TMI 1117 - HC - Income Tax

Nature of Capital gain LTCG or STCG Sale of residential property Held that - The decision in Vinod Kumar Jain v. Commissioner of Income Tax, Ludhiana and others 2010 (9) TMI 850 - Punjab and Haryana High Court and Circular No.471, dated 15.10.1986 followed - The allottee gets title to the property on the issuance of an allotment letter and the payment of instalments is only a consequential action upon which the delivery of possession flows - the provisions of Sections 2(14), 2(29A) and 2(42A) encompasses within its ambit those cases of capital asset which are held by an assessee. The flat was allotted to the appellant on 07.06.1986, vide letter conveyed to the assessee on 30.06.1986 - The assessee paid the first installment on 04.07.1986, thereby conferring a right upon the appellant to hold a flat, which was later identified and possession delivered on a later date - 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 installments, 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 thus, the ITAT has erred in holding that the transaction does not envisage a long term capital gain Decided in favour of Assessee.

Summary

Issues:
1. Correctness of the order passed by the Income Tax Appellate Tribunal.
2. Determination of whether the capital gains are long term or short term.
3. Interpretation of specific provisions of the Income Tax Act regarding capital gains.

Analysis:
1. The appellant challenged the order passed by the Income Tax Appellate Tribunal, which rejected the claim of treating the amount received from the sale of a flat as long term capital gain. The appellant contended that the right to hold the flat vested upon allotment and payment of the first installment, making the sale after 36 months a long term capital gain. The appellant also cited a previous judgment in favor of a similar case to support their argument.

2. The appellant argued that the mere allotment and payment of the first installment without physical possession or identification of the flat should still qualify as a long term capital gain. The revenue's counsel, on the other hand, contended that the allotment letter did not confer any specific right to the flat in question and should not be considered for long term capital gain purposes. The Income Tax Appellate Tribunal held that the specific allotment of the flat on a certain date did not automatically entitle the appellant to claim long term capital gain.

3. The High Court referred to a previous judgment involving a similar issue regarding the interpretation of provisions of the Income Tax Act. The Court analyzed relevant sections of the Act, including definitions of long term and short term capital assets, to determine the eligibility for long term capital gain. The Court also examined a circular issued by the CBDT regarding the treatment of capital gains tax in cases of flat allotment under specific schemes.

4. After considering the arguments and legal provisions, the High Court held that the Income Tax Appellate Tribunal erred in not recognizing the transaction as a long term capital gain. The Court emphasized that the allotment letter and payment of the first installment conferred the right to hold the property, making subsequent actions such as identification of the flat and delivery of possession consequential. The Court overturned the previous order, allowing the appeal and ruling in favor of the assessee based on the interpretation of relevant provisions and precedents.