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2019 (12) TMI 752 - AT - Income TaxComputation of the capital gain on sale of residential properties - denial of benefit of indexation for the purpose of computing capital gain - AO rejected the claim of the assessee, as assessee did not furnish it through a return of income but by way of a letter - HELD THAT - According to us it was not a fresh claim of the assessee but merely correction of a computation of capital gain. This issue is squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in Principal Commissioner of Income tax v. Oracle (OFSS) BPO Services Ltd 2019 (1) TMI 1087 - DELHI HIGH COURT . Where assessee had filed a revised computation of income requesting allowance of certain amounts as deduction from capital gain, since it was not a case where any new claim for deduction was made and there was merely recomputation of claim already made by assessee, such revised computation was to be accepted in the assessment proceedings. We reverse the finding of the learned CIT A and learned assessing officer holding that the learned AO should have considered recomputation of the claim of the assessee of capital gain. Whether the indexation of the property shall be allowed to the assessee from the date of allotment of property or from the date on which the possession was given to the assessee/the date of registration? - Date on which the assessee paid the booking money for allotment of the house, he held the property from that date, he might have acquired/ purchased the property on later date. The basic reason for granting indexation of the cost of acquisition, which is linked with the cost inflation index, is to tax only the real income of the assessee and not the capital gain being appreciation of the property including inflation in the price (increase in the cost of living). Therefore, as the intention is to tax only the appreciation in the property excluding the appreciation in the price of the property due to inflation, the assessee must be granted the indexation of the cost in the financial year in which it has incurred/paid, irrespective of the fact that house property is subsequently registered in the name of the assessee or the possession is granted to the assessee of that property later on. In view of this, we are of the view that assessee must be granted indexed cost of acquisition of the sum paid in financial year 2005 2006 by applying the cost inflation index applicable to financial year 2005 2006 of 497 instead of cost inflation index of 551 applicable for financial year 2007 2008 (the year in which the possession of the property was given) to the assessee. Sale of shares allotted to the assessee under employee stock option plan ESOP and taking the sale value above fair market value as income from other source u/s 56 (2) (vii) - Correct head of Income - there is no transfer of any controlling interest - assessee has sold the shares and has not received any other property - chargeable to tax under the head capital gain or as a business income - benefit of section 54F denied - HELD THAT - Issue squarely covered by the circular number 6/2016 of the CBDT and letter dated 2/05/2016 the above transaction of the sale of the shares and consequent gain arising therefrom should be chargeable to tax under the head capital gains only. Accordingly we direct the learned AO to tax gain arising on the sale of about shares under the head capital gain only. Thus as we have already held that the profits on sale of shares would be chargeable to tax under the head capital gain, the ground number 3 of the appeal of the assessee is allowed and ground number 1 and 2 of the appeal of AO are dismissed. Grant of benefit under section 54F - As we have already held that the gains arising on the sale of the shares would be chargeable to tax under the head of capital gain, we direct learned assessing officer to grant deduction u/s 54F
Issues Involved:
1. Computation of capital gain on sale of residential property. 2. Tax treatment of profit arising from the sale of shares of Pine Labs Pvt. Ltd. 3. Denial of benefit under section 54F of the Income Tax Act. Issue-wise Detailed Analysis: 1. Computation of Capital Gain on Sale of Residential Property: Assessee declared a long-term capital gain of INR 30,762,604 on the sale of a residential property. The cost of acquisition was indexed from FY 2007-08. During assessment, the assessee filed a revised computation claiming indexation from FY 2005-06 based on the date of booking the property. The Assessing Officer (AO) rejected this claim, stating that the property was handed over in FY 2007-08, and thus, the indexation should start from that year. The CIT(A) upheld the AO's decision, citing the Supreme Court's decision in Goetz (India) Ltd. vs. CIT, which restricts claims made through letters instead of revised returns. The Tribunal held that the assessee's revised computation was a correction, not a new claim, supported by the Delhi High Court's decision in Principal Commissioner of Income Tax v. Oracle (OFSS) BPO Services Ltd. The Tribunal concluded that indexation should be allowed from the date of the first payment (FY 2005-06) and not from the date of possession (FY 2007-08). Thus, the Tribunal reversed the lower authorities' findings and allowed the assessee's appeal on this issue. 2. Tax Treatment of Profit Arising from the Sale of Shares of Pine Labs Pvt. Ltd.:The assessee sold shares of Pine Labs Pvt. Ltd. and reported the income under capital gains, claiming exemption under section 54F. The AO treated the income as business income, arguing that the sale involved the transfer of control and management. The CIT(A) partially agreed, splitting the sale consideration into capital gains (up to fair market value) and income from other sources (excess over fair market value) under section 56(2)(vii). The Tribunal examined the share purchase agreement and found no reference to the transfer of control and management. It referred to CBDT Circular No. 6/2016 and a letter dated 2/5/2016, which clarify that gains from the transfer of unlisted shares should be treated as capital gains unless the transfer involves control and management. Since the assessee retained control and management post-transfer, the Tribunal held that the gains should be taxed under capital gains. Consequently, the Tribunal allowed the assessee's appeal and dismissed the AO's appeal on this issue. 3. Denial of Benefit under Section 54F of the Income Tax Act:Given the Tribunal's decision to treat the gains from the sale of shares as capital gains, the assessee was entitled to the benefit under section 54F. The Tribunal directed the AO to grant this benefit, thereby allowing the assessee's appeal on this ground. Conclusion:The Tribunal allowed the assessee's appeal on all grounds, reversing the lower authorities' decisions on the computation of capital gain and the tax treatment of share sale profits. The AO's appeal was dismissed, and the assessee was granted the benefit under section 54F. Order Pronounced:Order pronounced in the open court on 20/11/2019.
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