2014 (3) TMI 474 - HC - Income Tax

Taxability of capital gains STCG OR LTCG Whether the booking rights to the apartment accrued to the assessee on the date of application for allotment/confirmation of allotment or on the date of execution of the agreement to sell i.e. the buyer s agreement Held that - A right or interest in an immovable property can accrue only by way of an agreement embodying consensus ad idem - The nature of the right sought to be transferred here is the right to purchase the apartment and obtain title, termed booking rights - Only that agreement which intends to convey these rights according to both parties can be considered as the source of accrual of rights to the assessee - the Builders do not intend to convey any right of provisional/final allotment or any right to claim title/ownership under the confirmation letter - There being no intention to convey rights in this document, it would be impermissible for the Court to find that the right to obtain title/ booking rights emanated from the confirmation letter - These rights may only be located in the Buyer s agreement - the date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004 thus, the capital asset in the form of these rights was held for a period of 35 months and 28 days, i.e. a short-term capital asset thus rendering the profits from the transfer of this capital asset taxable as short-term capital gains. It is incorrect to say that the assessee had no right or interest in the property until the completion of payment of all instalments under the agreement as the assessee was a beneficial owner from the date of signing the agreement, having been put in possession of the property as of that date - Section 2(42A) of the Act only uses the term held and not owned , thus indicating that a capital asset need not only refer to full title over any property thus, there is no infirmity in the order of the Tribunal Decided against Assessee.

Summary

Issues Involved:
1. Whether capital gains are taxable as long-term or short-term capital gains.
2. Determination of the date of acquisition of the capital asset.
3. Applicability of Section 54 exemption.

Issue-wise Detailed Analysis:

1. Whether capital gains are taxable as long-term or short-term capital gains:
The primary question of law is whether the capital gains arising from the sale of booking rights in an apartment are taxable as long-term or short-term capital gains. The appellant claimed the gains as long-term, asserting that the rights were held for more than 36 months. However, the Assessing Officer (AO) and the Income Tax Appellant Tribunal (ITAT) concluded that the gains were short-term, as the rights were held for less than 36 months from the date of the buyer's agreement.

2. Determination of the date of acquisition of the capital asset:
The appellant argued that the acquisition date should be considered as 31.07.2004, the date of the application for allotment and payment of the booking amount, or alternatively, 06.08.2004, the date of the provisional allotment letter. The AO, CIT-A, and ITAT held that the acquisition date was 04.11.2004, the date of the buyer's agreement. The court emphasized that a right or interest in an immovable property can only accrue through an agreement embodying consensus ad idem. The confirmation letter dated 06.08.2004 explicitly stated that no rights would accrue until the buyer's agreement was signed. Thus, the court concluded that the date of acquisition of the capital asset must be considered as 04.11.2004.

3. Applicability of Section 54 exemption:
The appellant claimed an exemption under Section 54 of the Income Tax Act, 1961, arguing that the capital gains were long-term and reinvested in another property. However, since the gains were deemed short-term, the exemption under Section 54 was not applicable. The AO added Rs. 28,20,000/- as short-term capital gains to the appellant's income, which was upheld by the CIT-A and ITAT.

Conclusion:
The court concluded that the capital asset in the form of booking rights was held for a period of 35 months and 28 days, rendering the profits from the transfer taxable as short-term capital gains. The appeal was dismissed, affirming the decisions of the AO, CIT-A, and ITAT. The court found no legal infirmity in the ITAT's order and distinguished the case from Ved Parkash, where the right of possession was transferred along with the agreement to sell, which was not the case here.