2017 (10) TMI 1003 - AT - Income Tax

Right to property - long term capital gain - period of holding - whether is a capital asset u/s. 2(14)? - assessee was holding the right to property during the period 1st April, 2002 to 10th February, 2006 i.e. for a period of 4 years and 9 days (exceeding 36 months) - Held that - The owners of the plot have authorised the developer to take the plot and the moment the assessee has booked the flat and flat has been allotted to the assessee, a valuable right has created. It is a capital asset and that right continued till the assessee entered into tripartite agreement dated 10th February, 2006. Under section 45 of the Income Tax Act transfer of a capital asset is chargeable to tax under the head capital gains and not under the head income from business . It is not a case of the Revenue that the assessee was regularly booking flats and selling the same so that it can be said that the assessee has entered into a business transaction. The income shown by the assessee has to be assessed under the head income from capital gains . The capital derived by the assessee is long term capital gain as the assessee held the right on the asset for more than 36 months. We therefore set aside the order of the CIT(A) and direct the AO to treat the said profit as long term capital gains a returned by the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the term "capital asset" under section 2(14) of the Income Tax Act, 1961.
2. Determination of whether the profit earned by the assessee should be treated as long term capital gains or business income.

Issue 1: Interpretation of the term "capital asset" under section 2(14) of the Income Tax Act, 1961:

The appeal pertains to the Revenue challenging the order of the CIT(A) regarding the nature of the right to property held by the assessee. The Revenue contended that the right to property is a capital asset under section 2(14) of the Income Tax Act, 1961. The Revenue argued that the allotment letter was fabricated, leading to the view that the profit earned by the assessee was an adventure in the nature of trade. However, the Tribunal observed that the onus is on the Revenue to prove that the document furnished by the assessee is fabricated. The Tribunal referred to legal precedent stating that the onus to prove the apparent is not real lies with the party making such allegations. The Tribunal analyzed the allotment process, development agreements, and permissions granted, concluding that the right created in favor of the assessee through the allotment letter constituted a valuable capital asset. The Tribunal emphasized that the transaction should be assessed under the head of "income from capital gains" rather than "income from business."

Issue 2: Determination of whether the profit earned by the assessee should be treated as long term capital gains or business income:

The Tribunal reviewed the facts of the case, highlighting that the assessee acquired rights in a capital asset through the allotment letter and subsequent agreements. The Tribunal noted that the assessee's right got extinguished upon transferring the said right through an agreement. Analyzing the timeline of events, permissions obtained, and agreements signed, the Tribunal concluded that the profit derived by the assessee should be categorized as long term capital gains. The Tribunal emphasized that the nature of the transaction did not indicate a regular business activity of booking and selling flats, leading to the decision that the income should be assessed under the head of "income from capital gains." Consequently, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to treat the profit as long term capital gains as returned by the assessee.

In conclusion, the Appellate Tribunal ITAT Mumbai, in the cited judgment, provided a detailed analysis of the issues concerning the interpretation of the term "capital asset" and the categorization of the profit earned by the assessee. The Tribunal emphasized the importance of assessing transactions correctly under the Income Tax Act provisions and legal precedents, ultimately ruling in favor of the assessee and allowing the appeal.