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2018 (2) TMI 978 - AT - Income TaxTreatment to Capital gain on sale of flat - STCG v/s LTCG - period of holding - possession held for more than 36 months - CIT-A treated as LTCG - Held that - Interest in the property is created the moment the agreement to purchase is entered into in favour of the assessee accompanying with part payment. The date of possession is not material for deciding the period of holding by the assessee for the purpose whether the gain is long term or short term. CIT(A) has passed a reasoned and elaborate order for coming to the conclusion that the assets held by the assessee was long term asset and directed the AO to recompute the long term capital gain by allowing indexation on the cost of acquisition taking the date of purchase as 18.12.2006. The case of the assessee is also covered by a plethora of decisions of various High Courts and decisions of Coordinate Benches which has been referred to by the first appellate authority. - Decided against revenue
Issues Involved:
1. Whether the capital gain arising from the sale of the flat should be treated as short-term or long-term capital gain. 2. Eligibility for exemption under Section 54 of the Income-tax Act, 1961. 3. Applicability of CBDT Circulars No. 471 and No. 672 in determining the holding period for capital gains. Issue-wise Detailed Analysis: 1. Treatment of Capital Gain as Short-term or Long-term: The primary issue was whether the gain from the sale of flat No. 1807, Ashok Towers, Mumbai, should be treated as a short-term capital gain (STCG) or long-term capital gain (LTCG). The Assessing Officer (AO) treated the gain as STCG, arguing that the property was held for less than 36 months since the physical possession was taken on 19.01.2011 and sold on 11.05.2011. The AO ignored the agreement of purchase dated 18.12.2006, which the assessee contended marked the acquisition date, thus holding the property for more than 36 months. The CIT(A) disagreed with the AO, stating that the period of holding should start from the date of the agreement to purchase, not the date of possession. The CIT(A) emphasized that the allottee gets valuable rights in the property upon the agreement to purchase, which are irrevocable as long as the conditions, including payment of installments, are met. The CIT(A) cited various judgments supporting that the holding period commences from the date of the agreement to purchase, leading to the conclusion that the gain should be treated as LTCG. 2. Eligibility for Exemption under Section 54: The AO also contended that the assessee was not eligible for exemption under Section 54 of the Income-tax Act, 1961, which provides for exemption of capital gains on the sale of residential property if the gains are reinvested in another residential property. The CIT(A) and the Tribunal, however, held that since the gain was LTCG, the assessee was indeed eligible for the exemption under Section 54. The Tribunal upheld the CIT(A)'s order, which had directed the AO to treat the asset as a long-term capital asset and recompute the capital gain accordingly. 3. Applicability of CBDT Circulars: The AO argued that the reliance on CBDT Circulars No. 471 and No. 672 by the CIT(A) was misplaced, as these circulars pertained to the construction of property for the purpose of capital gain and deductions under Sections 54 and 54F. The CIT(A) and the Tribunal found that these circulars clarified that the allottee gets title to the property on the issue of the allotment letter, and the payment of installments and possession are mere formalities. The Tribunal cited several judgments where similar interpretations were upheld, confirming that the date of allotment/agreement to purchase should be considered for determining the holding period. Conclusion: The Tribunal upheld the CIT(A)'s decision, concluding that the asset was a long-term capital asset and the gain should be treated as LTCG. The Tribunal also confirmed the eligibility for exemption under Section 54 and the applicability of the CBDT Circulars, dismissing the Revenue's appeal and directing the AO to recompute the capital gain accordingly. Order Pronouncement: The order was pronounced in the open court on 13th February 2018.
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