2019 (2) TMI 1059 - AT - Income Tax

Computation of capital gain on sale of a property - holding period - whether the gain on sale of the RR Property which was obtained originally on 22.03.2001 on lease from the society which was subsequently conveyed absolutely by the society to the Assessee by a registered sale deed dated 31.08.2014 can be said to be a LTCG? - Held that - It is not in dispute that the Assessee paid cost of the site as early as 22.3.2001 and was in possession of the property as lessee cum Agreement holder with right to obtain conveyance of absolute interest over the land that was leased. The expression held by the Assessee in the context of Sec.2(42A) of the Act, is rather ambiguous, in the sense that it does not speak of the date of vesting of legal title to the property. Even the provisions of sec.2(47)(v) & (vi) of the Act which defines what is transfer for the purpose of the Act, considers possessory rights as akin to legal title. It is therefore necessary to look into the policy and object of the provisions giving exemption from levy of tax on capital gain. In the present case, as we have already seen, the Assessee had paid the entire consideration for the site originally allotted as early as in the year 2001. The Assessee had performed its part of the contract with the society. Therefore the claim of the Assessee that it held the property from 22.3.2001 has to be accepted, keeping in mind the policy and object of the provisions giving exemption from levy of tax on capital gain. We are of the view that the capital gain in question in the present case has to be treated as LTCG as claimed by the Assessee Computation of capital gain and deduction u/s. 54F in respect of another property sold by the assessee during the relevant previous year - Held that - A person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited. We are therefore of the view that the Assessee was entitled to claim deduction u/s.54F. Whether the deduction u/s.54F has to be restricted to only 1/3rd of the cost of acquisition of the new asset for the reason that the Assessee purchased the property along with the name of his wife and son shown as purchaser in the document under which the property was purchased? - Held that - As decided in DIRECTOR OF INCOME-TAX. INTERNATIONAL TAXATION. BANGALORE VERSUS MRS. JENNIFER BHIDE 2011 (9) TMI 161 - KARNATAKA HIGH COURT entire consideration had flow from Assessee and no consideration had flown from her husband. Merely because the husband s name is also mentioned in the purchase document, the Assessee could not be denied the benefit of deduction. AO allowed deduction u/s.54EC only to the extent of 50% on the reasoning that deduction will be allowed only to the extent of investment made in the name of the Assessee - the entire consideration had flow from Assessee and no consideration had flown from her husband. Merely because the husband s name is also mentioned in the purchase document, the Assessee could not be denied the benefit of deduction. Assessee should be entitled to the benefit of deduction u/s.54F of the Act, to the whole extent of investment in purchase of new asset, even though the property has been purchased in the joint names of Assessee, his wife and son - Decided in favour of assessee.

Summary

Issues Involved:
1. Computation of capital gain on the sale of RR property.
2. Computation of capital gain and deduction under Section 54F of the Income Tax Act for another property sold by the assessee.

Issue-wise Detailed Analysis:

1. Computation of Capital Gain on Sale of RR Property:

The first issue pertains to the computation of capital gain on the sale of a property, specifically Site No.513 (PII), R.R. Nagar, Bangalore (RR property). The assessee acquired this property under a lease-cum-sale agreement dated 22.03.2001 and complied with all terms, including construction and possession. The property was conveyed to the assessee via a registered sale deed on 31.08.2014 and subsequently sold on 03.12.2014. The assessee computed long-term capital gain (LTCG) by considering the acquisition date as 22.03.2001, claiming the property was held for over three years. However, the AO considered the acquisition date as 31.08.2014, treating the gain as short-term capital gain (STCG) and disallowing the deduction under Section 54F.

Upon appeal, the Tribunal analyzed the definitions of "long-term capital gain" and "short-term capital asset" under Sections 2(29B), 2(29A), and 2(42A) of the Income Tax Act. It concluded that the term "held by the assessee" includes possessory rights akin to legal title, as supported by various judicial precedents, including the Karnataka High Court's decision in CIT Vs. Dr. Shakuntala and CIT Vs. A Suresh Rao. The Tribunal held that the assessee had held the property since 22.03.2001, thus qualifying the gain as LTCG. Consequently, the Tribunal allowed the assessee's claim for LTCG and the associated deduction under Section 54F.

2. Computation of Capital Gain and Deduction under Section 54F:

The second issue concerns the computation of capital gain and deduction under Section 54F for another property sold by the assessee, specifically Site No.689, HSR Layout, Bangalore. The assessee sold this property on 05.06.2014, realizing a capital gain of ?1,33,89,451, and claimed exemption under Section 54F by investing in a property at N.R. Colony for ?3,60,00,000. The AO disallowed the deduction, arguing that the property purchased had two door numbers and was in joint names (assessee, wife, and son), thus restricting the deduction to 1/3rd of the investment.

The Tribunal examined the property details and concluded that it was a single property with two door numbers due to historical reasons, not constituting two separate properties. The Tribunal cited the Delhi High Court's decision in CIT Vs. Gita Duggal, which held that a residential house with multiple units still qualifies as a single house for Section 54/54F purposes. Therefore, the Tribunal allowed the full deduction under Section 54F.

Regarding the joint ownership issue, the Tribunal noted conflicting judicial views but favored the assessee, relying on the Karnataka High Court's decision in Mrs. Jennifer Bhide, which allowed full deduction even if the property was purchased in joint names, provided the entire consideration flowed from the assessee. The Tribunal followed the principle that where two views are possible, the one favorable to the assessee should be adopted. Thus, the Tribunal allowed the full deduction under Section 54F for the entire investment.

Conclusion:

The Tribunal allowed the appeal, recognizing the capital gain on the RR property as LTCG and granting the full deduction under Section 54F for the investment in the N.R. Colony property, despite the joint ownership and multiple door numbers. The judgment emphasizes the interpretation of "holding" property and the eligibility for deductions under the Income Tax Act.