2018 (11) TMI 433 - AT - Income Tax

LTCG or STCG - Entitlement for long term capital gain benefits - period of holding - capital gain on sale of flat at Juhu - acquisition of rights in the property - booking of the flats with the builders - Held that - In this case no allotment letter was issued by the developer to the buyer. The Letter of Confirmation of purchase of flat dated 15.07.2005 together with Letter of Purchase Option dated 01.05.2005 constitute the allotment letter for allotting flat on 3rd floor in the proposed new building giving complete terms and conditions of the allotment such as purchase price, flat details, details of payment of installment, details of payment of stamp duty, registration etc. Both the letters were signed and confirmed by the assessee as well as the Developer/Builder. Hence, the Assessing Officer s observation that there is no commitment or allotment of flat by the developer to the assessee is not correct. Both the letters dated 01.04.2005 and 15.07.2005 are signed and confirmed by the developer and they are for the purpose of allotment of particular flat for a consideration mentioned therein. Hence, the date of acquisition of the right in the property should be taken when the option was exercised for purchase of flat i.e. 15.07.2005. CBDT Circular No.471 dated 15/10/1996 has clarified the position in regard to flat booked by an assessee under self finance scheme of DDA. It has been clarified by the CBDT that the period of holding of the property will be counted from the date of issuance of allotment letter by the DDA pursuant to which the installments have been paid by the assessee and construction has been made by DDA. Irrespective of the fact whether the agreement with the builder may have certain clauses which may not make the buyer owner of the flat as such, the intention of the builder as well as of the buyer in all these cases is that the buyer will make payment to the builder and builder will construct the flat and hand over the same to the buyer. Accordingly, the clarification given by the CBDT is equally applicable to the booking of the flats with the builders and period of holding will be counted from the booking of the flats. Thus we direct the AO to compute period of holding from 15/07/2005, which works out to be more than 36 months, accordingly, assessee is entitled for long term capital gain benefits - Decided in favour of assessee

Summary

Issues Involved:
1. Reopening of the case by issuing notice u/s.148.
2. Classification of capital gain on the sale of flat as short-term or long-term.

Detailed Analysis:

Reopening of the Case by Issuing Notice u/s.148:

The assessee challenged the reopening of the case by the Assessing Officer (AO) under section 148 of the Income Tax Act, arguing that the reassessment was not tenable in law. The assessee relied on the Delhi High Court decision in the case of Simka Hotels & Resorts, asserting that proper disclosure of income was made and no material facts were suppressed. The CIT(A) observed that in the Simka Hotels & Resorts case, the reassessment was challenged under Article 226, which was not applicable to the assessee's situation. The CIT(A) noted that the assessee’s return was processed only under section 143(1) and there was tangible material for reopening the assessment. The reasons for reopening were duly provided to the assessee, and thus, the CIT(A) dismissed the appeal on this ground.

Classification of Capital Gain on Sale of Flat:

The primary issue was whether the capital gain from the sale of the flat at Juhu should be classified as a short-term or long-term capital gain. The assessee claimed it as a long-term capital gain, arguing that the rights in the flat were held for more than 36 months, starting from 01.06.2005. The AO contended that there was no registered document for the purchase of the property and no development agreement between the owners and M/s. P. R. Investments. The AO concluded that the date of acquisition should be the date of possession in December 2008, or alternatively, the date of the development agreement on 26.04.2006, making it a short-term capital gain.

The CIT(A) upheld the AO’s decision, emphasizing that there was no evidence of a registered document confirming the booking of the flat by the assessee. The CIT(A) pointed out discrepancies in the dates and amounts mentioned in the documents provided by the assessee. The assessee’s claim was based on letters of interest and a Memorandum of Agreed Terms, which did not constitute a formal allotment. The CIT(A) concluded that the right to purchase the flat materialized only when the option was exercised on 21.04.2009, making the gain a short-term capital gain.

However, upon further appeal, the Tribunal found that the assessee had acquired the right in the property on 15.07.2005, when the option to purchase the flat was exercised. The Tribunal referred to the CBDT Circular No.471, which clarifies that the period of holding should be counted from the date of issuance of the allotment letter. The Tribunal directed the AO to compute the period of holding from 15.07.2005, which exceeds 36 months, thus classifying the gain as a long-term capital gain.

Conclusion:

The Tribunal allowed the appeal in part, directing the AO to treat the capital gain as a long-term capital gain based on the period of holding starting from 15.07.2005. The reopening of the case under section 148 was upheld, but the classification of the capital gain was revised in favor of the assessee.