2017 (4) TMI 397 - AT - Income Tax

Entitlement of exemption u/s 54 - period required to be considered as holding of the sold property for assessing the income as Short Term / Long Term Capital Gain - Held that - Ratio given in the case titled Mrs. Madhu Kaul Vs. CIT and another 2014 (2) TMI 1117 - PUNJAB & HARYANA HIGH COURT and CIT Vs. S.R.Jeyshankar 2014 (12) TMI 264 - MADRAS HIGH COURT are quite applicable to the facts of the present case in which the date of allotment letter was considered to assess the holding period to ascertain the entitlement of exemption u/s.54 of the Act. In view of the said circumstances we are of the view that the finding of the CIT(A) on this said issue is wrong against law and facts and is not liable to be sustainable in the eyes of law. Hence, we set aside the finding of the CIT(A) on this issue and direct the Assessing Officer to consider the allotment letter dated 30.03.2005 to determine the Long Term / Short Term Capital Gain and accordingly entitlement of exemption u/s.54 of the Act

Summary

Issues Involved:
1. Legality and correctness of the order passed by the Assessing Officer.
2. Computation of total income by the Assessing Officer.
3. Classification of capital gains on the sale of residential premises.
4. Adoption of market value for the purpose of computation of capital gain.
5. Formal and procedural grounds.

Issue-wise Detailed Analysis:

Issue 1: Legality and Correctness of the Order Passed by the Assessing Officer
The assessee contended that the CIT(A) erred in upholding the order of the Assessing Officer, which was claimed to be illegal and bad in law. The Tribunal examined the grounds and found that the CIT(A) had not properly considered the relevant facts and legal precedents, leading to an incorrect conclusion. The Tribunal set aside the CIT(A)'s findings, directing a reassessment based on the correct legal principles.

Issue 2: Computation of Total Income by the Assessing Officer
The assessee argued that the CIT(A) sustained the Assessing Officer's computation of total income at ?65,12,480/- against the returned income of ?11,16,013/-. The Tribunal found that the computation was based on incorrect classification of capital gains (short-term vs. long-term), leading to an inflated income assessment. The Tribunal directed the Assessing Officer to reassess the income considering the correct classification of capital gains.

Issue 3: Classification of Capital Gains on the Sale of Residential Premises
The core issue was whether the capital gains on the sale of residential premises at Neelkanth Palm, Thane, should be classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG). The assessee claimed exemption under Section 54, arguing that the gains were long-term. The Tribunal referenced similar cases, including Mrs. Anupama Agarwal Vs. DCIT, where the date of allotment and first installment payment was considered for determining the holding period. The Tribunal concluded that the date of allotment (30.03.2005) should be used to assess the holding period, thus classifying the gains as long-term and allowing the exemption under Section 54.

Issue 4: Adoption of Market Value for the Purpose of Computation of Capital Gain
This issue was rendered academic due to the resolution of the primary issues in favor of the assessee. Since the Tribunal directed the reassessment based on the date of allotment, the need to adopt a different market value for the computation of capital gain did not arise.

Issue 5: Formal and Procedural Grounds
The Tribunal noted that this issue was formal in nature and did not require adjudication, as it did not affect the substantive outcome of the appeal.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s order and directing the Assessing Officer to reassess the income based on the correct classification of capital gains, considering the date of allotment as the starting point for the holding period. The Tribunal's decision was pronounced in the open court on 31st March 2017.