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2019 (5) TMI 1599 - AT - Income TaxGain on Sale of pent house - LTCG or STCG - co-ownership in property - period of holding of the pent house has to be reckoned from the date of allotment of the property i.e 13.10.2005 and not from the date of possession in 2012 - HELD THAT - Possession of the flat is flowing from the terms and conditions mentioned in the buyer s agreement itself. Thus, in our opinion the date of possession cannot be reckoned as a date of the acquisition of the flat for the purpose of computing the period of short term or long term. We are in tandem with the contention of Mr. Ajay Wadhwa that, even if the date of allotment is not to be treated as the date of acquisition, but the date of buyer s agreement dated 8.3.2006 is the date in which the assesee has acquired the rights in the property. Accordingly we direct the AO to treat the date of acquisition of the flat / property on 8.3.2006. As never in dispute by the revenue that assessee did not had a valuable right in the property which is a capital asset under the Income Tax Act and it is this capital asset which has been sold by the assessee in this year. Thus, we hold that, firstly it is a transfer of a long term capital gain; and secondly, the same has to be taxed as long term capital gain. Consequently ground No. 1 to 6 is allowed. Allowability of Interest expenses - interest paid on loan borrowed to the extent of the assessee s share in the property up to the date of possession - HELD THAT - Both the authorities have tried to co-relate the ownership of the property way back in 8.3.2006 for which he has made fully payment after taking loan from the bank. The Act which provides that any expenditure incurred wholly and exclusively in acquisition of asset or cost of any improvement therein has to be allowed by deducting from the full value consideration received or agreed as a result of transfer of the capital asset. If the capital asset has been transferred in this year , then up to the date of transfer, the cost of acquisition and improvement has to be allowed. This issue is also covered by the other decision of the Hon ble Delhi High Court in the case of CIT vs. Mithlesh Kumari 1973 (2) TMI 11 - DELHI HIGH COURT wherein the Hon ble High Court has allowed the full interest paid from the period up to the date of sale and therefore, the ratio will apply as binding precedence. Thus, we direct the AO to allow the interest up to the date of sale. Allowability of other expenses - expenses incurred by the assessee over the period of time which has been claimed towards cost of acquisition - HELD THAT - From the perusal of the above expenses, we find that certain expenses are directly related to the cost of the improvement for example Govt. Tax , cost of electric meter, cost of BTU meter, HVAC charges, service charges, stamp duty charges. However charges like maintenance charges, electricity charges and other charges cannot be held to be any expenditure incurred wholly and exclusively connected with the transfer of cost of acquisition. Therefore, AO has directed to examine these expenses and allowed the same u/s 48 in the computation of long term capital gain. Allowability of penalty, Commission and maintenance charges - AO has disallowed the said expenses on the ground that they are in relation to the capital asset and not in the business account - HELD THAT - In so far as penalty in concerned Ld. Counsel admitted that same has already been disallowed by the assesee in the computation of income, therefore, further disallowance leads to total addition on the same amount. We find the contention of the Ld. Counsel is correct and therefore, we direct the AO to remove the disallowance because assessee has already added back in the computation of income. Commission addition - Ld. Counsel pointed out AO while computing the short term capital gain has reduced the commission and therefore, if income is to be computed as long term capital gain then same treatment should be given. We find substance in the arguments of the Ld. Counsel , if the nature of commission has is in relation to the transfer of capital asset then while computing the long term capital same should be allowed. However, in respect to maintenance expenses which were for the upkeep of the flat the same would not be allowed as a part of cost of acquisition of capital asset and therefore, same cannot be allowed. Appeal of the assessee is partly allowed.
Issues Involved:
1. Classification of capital gain as long-term or short-term. 2. Disallowance of credit of other expenses related to the property. 3. Disallowance of business expenses, specifically maintenance charges and penalty. Detailed Analysis: 1. Classification of Capital Gain as Long-Term or Short-Term: The primary issue was whether the gain from the sale of the penthouse should be treated as a long-term capital gain (LTCG) or a short-term capital gain (STCG). The assessee argued that the holding period should be reckoned from the date of allotment (13.10.2005) rather than the date of possession (July 2012). The assessee cited various judgments and a CBDT circular to support the claim that the right to the property was acquired on the date of allotment, making it a long-term capital asset. The revenue, however, contended that the property came into existence only in 2012 when possession was transferred, thus treating it as a short-term capital asset. The Tribunal held that the right in the property, which is recognized as a capital asset, was acquired on the date of the buyer’s agreement (08.03.2006). The Tribunal directed the AO to treat the date of acquisition of the flat as 08.03.2006, thereby classifying the gain as LTCG. 2. Disallowance of Credit of Other Expenses Related to the Property: The assessee claimed various expenses totaling ?1,13,82,644/- towards the cost of acquisition and improvement of the property. The AO disallowed these expenses, arguing that they were subsumed in the rebate received. The Tribunal examined the details of the expenses and found that certain expenses, such as government tax, cost of electric meter, cost of BTU meter, HVAC charges, service charges, and stamp duty charges, were directly related to the cost of improvement and should be allowed. However, maintenance charges and electricity charges were not considered as expenditure incurred wholly and exclusively for the transfer of the asset. The Tribunal directed the AO to examine and allow the relevant expenses under Section 48 in the computation of LTCG. 3. Disallowance of Business Expenses: The AO disallowed maintenance charges of ?1,69,662/- and a penalty of ?6,000/- on the grounds that they were related to the capital asset and not the business account. The Tribunal noted that the penalty of ?6,000/- had already been disallowed by the assessee in the computation of income, leading to double addition. The Tribunal directed the AO to remove this disallowance. Regarding the commission of ?5,61,800/-, the Tribunal found that if the commission was related to the transfer of the capital asset, it should be allowed in the computation of LTCG. However, maintenance expenses for the upkeep of the flat were not allowed as part of the cost of acquisition of the capital asset. Conclusion: The appeal was partly allowed, with the Tribunal directing the AO to treat the capital gain as long-term, allow interest expenses up to the date of sale, and examine and allow relevant expenses related to the cost of acquisition and improvement. Maintenance expenses and certain other charges were not allowed as part of the cost of acquisition. The order was pronounced in the open court on 28th May 2019.
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