2015 (9) TMI 376 - AT - Income Tax

Entitlement to indexed cost of acquisition for working of capital gains - addition made on account of denying the exemption claimed under section 54 by treating the LTCG claimed by the assessee as STCG, as the assessee has held the ownership of the flat for less than 36 months - holding period of the flat sold by the assessee during the year under consideration, should be counted from which date? - Held that - The assessee is holding the possession of the flat since 15th April 1996 and this fact is not denied and is duly supported with the evidence submitted by the assessee. The evidences available on record clearly show that the assessee has been holding this flat as a user and as an owner since beginning. No adverse comment has been given by the Assessing Officer either during the course of assessment proceedings or in the remand proceedings. The family declaration / confirmation dated 8th August 2008, is also placed. Allotment letter dated 15th April 1996 in the name of Shri Ratansingh C. Pethani, showing allotment of the impugned flat i.e., flat no.502, Ashirwad Building, 55, Shankar Lane, Kandiwali, Mumbai 400 067, in the name of the assessee. On a perusal of these documents and evidences, it is clearly established that the assessee has been the owner in possession of the said flat since 15th April 1996. Even otherwise, there cannot be any doubt on the fact that the assessee has been enjoying this property as a defacto owner . The concept of defacto ownership is not alien to the income tax law. Thus, viewed from any angle, the assessee is holding this flat since 15th April 1996 and, therefore, the learned CIT(A) has rightly allowed the claim of the assessee. Decided against revenue.

Summary

Issues:
1. Determination of holding period for capital gains tax calculation.

Analysis:
1. The main issue in this appeal was the determination of the holding period of a flat sold by the assessee for the assessment year 2010-11. The Assessing Officer contended that the holding period should be counted from the date of family settlement in 2008, making the asset a short-term capital asset. However, the assessee argued that the holding period should be counted from 1996 when he became a co-owner of the flat. The dispute revolved around whether the assessee was entitled to the exemption under section 54 of the Income Tax Act, 1961, based on the holding period of the asset.

2. The facts revealed that the assessee became a joint owner of the flat in 1996 and later became the sole owner through a family settlement in 2008. The Assessing Officer argued that the ownership was transferred only upon registration in 2008, while the assessee claimed ownership since 1996 based on possession and enjoyment of the property. The Assessing Officer's position was that ownership was conferred only upon registration, not retrospectively. The assessee presented evidence of possession and user of the flat since 1996, including electricity bills in his name, to support his claim of ownership.

3. The Commissioner of Income Tax (Appeals) examined the documents and evidence submitted by the assessee, including the family declaration confirming the allotment of the flat in 1996. The Commissioner found that the assessee had been in possession and enjoying the property since 1996, even though the registration confirming sole ownership occurred in 2008. The Commissioner upheld the assessee's claim of long-term capital gain, allowing the exemption under section 54 for investment in a new flat. The addition made by the Assessing Officer for short-term capital gain was deleted based on the evidence presented by the assessee.

4. The Tribunal considered the arguments of both parties and reviewed the evidence on record. It concluded that the assessee had been holding the flat since 1996 based on the documents and evidences provided. The Tribunal found no merit in the Revenue's grounds of appeal and dismissed the appeal, upholding the decision of the Commissioner of Income Tax (Appeals) in favor of the assessee.

5. In the final judgment pronounced on August 5, 2015, the Tribunal dismissed the Revenue's appeal, affirming the decision that the assessee was entitled to treat the capital gain as long-term and allowing the exemption claimed under section 54 of the Income Tax Act, 1961.