2018 (10) TMI 178 - AT - Income Tax

Gain on sale of property - LTCG or STCG - period of holding - indexation benefit - Held V/S acquire - Held that - The expressions like owned / acquired has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature was clear that for the purpose of determining the nature of capital gain, the period during which the asset was held by the assessee for all practical purposes on de-facto basis was to be considered and not the date of obtaining absolute legal ownership of the asset for determining the holding period. The term held has been interpreted by the Courts wherein unanimous view has been that the said term held is different from the term acquire . As in the case of CIT Vs. Ved Prakash & Sons (HUF) 1993 (7) TMI 45 - PUNJAB AND HARYANA HIGH COURT , stated that the term held is deliberately used as against term owned . Hence, a person can hold the asset as owner, lessee, tenant, etc. Therefore, the right to the property is held by a person from the date when he enters into an agreement for purchase and not when he acquires possession. Viewed from any angle, we are unable to find ourselves in agreement with the conclusion of Ld. first appellate authority that the capital gains earned were Short Term in nature and therefore, we reverse the same. The resultantly gain as counted from date of agreement, in our opinion, was Long Term Capital gain eligible for indexation benefit. This ground stands allowed. Deduction u/s 54 - Held that - We find that the lower authorities have denied the same primarily by concluding that the same was not available since the nature of capital gains was Short Term Capital Gains. Therefore, on factual matrix, the matter stand remitted back to the file of Ld. AO for re-adjudication & verification of deduction u/s 54 with a direction to the assessee to substantiate the same with documentary evidences / requisite information.

Summary

Issues Involved:
1. Nature of capital gains (short-term vs. long-term) on the sale of residential property.
2. Admissibility of deduction under Section 54 of the Income Tax Act, 1961.

Detailed Analysis:

1. Nature of Capital Gains:
The primary issue was whether the gain from the sale of the residential property should be classified as short-term or long-term capital gains. The assessee argued that the property was a long-term capital asset, as it was held for more than 36 months from the date of the purchase agreement (06/10/2008) to the date of sale (08/11/2011). The Revenue contended that the holding period should be calculated from the date of possession (04/07/2011), resulting in a holding period of less than three years, thus classifying the gains as short-term.

The Tribunal examined the premises ownership agreement dated 06/10/2008, noting the payment of stamp duty and the specific identification of the property. It was determined that the right to the property originated from this agreement, and the possession obtained later was in furtherance of the same agreement. The Tribunal emphasized that the term "held" in Section 2(42A) of the Income Tax Act indicates that the period from the date of the agreement should be considered for determining the nature of the asset. The Tribunal cited several judicial pronouncements, including CIT Vs. Ved Prakash & Sons (HUF) and other higher judicial authorities, which supported the view that the term "held" is distinct from "acquired" or "purchased."

The Tribunal concluded that the capital gains were long-term in nature, as the holding period should be counted from the date of the agreement (06/10/2008). Therefore, the gains were eligible for indexation benefits.

2. Admissibility of Deduction under Section 54:
The second issue was whether the assessee was entitled to the deduction under Section 54 against the capital gains from the sale of the residential property. The lower authorities had denied the deduction, primarily because they classified the gains as short-term.

Given the Tribunal's conclusion that the gains were long-term, the matter of deduction under Section 54 was remitted back to the Assessing Officer (AO) for re-adjudication and verification. The Tribunal directed the assessee to substantiate the claim for deduction with appropriate documentary evidence and requisite information.

Conclusion:
The Tribunal allowed the appeal in part, determining that the capital gains were long-term and remitting the issue of deduction under Section 54 back to the AO for further verification. The order was pronounced in the open court on 12th September 2018.