2021 (11) TMI 968 - AT - Income Tax

Computation of capital gains on sale of property - long term capital or short term capital asset - Period of holding of asset - whether the holding period of the asset should be reckoned from the date of registration of the property or from the date of allotment of the property for the purpose of deciding whether the asset transferred is a long term capital asset or a short term capital asset? - HELD THAT - We find that this issue is no longer res integra in view of the decision PCIT vs. Vembu Vaidyanathan 2019 (1) TMI 1361 - BOMBAY HIGH COURT wherein it was held that, date of allotment would be relevant date for the purpose of determining the holding period of capital asset. It was also held that date of allotment so made shall be the relevant date for the purpose of capital gain tax as date of acquisition - as also noted that the allottee gets title to the property on the issue of allotment letter and payment of instalments was only a follow-up action and taking delivery of the possession is only a formality - asset has been held by the assessee for more than three years as computed from the date of allotment and accordingly, the asset transferred would be a long term capital asset thereby resulting in long term capital gains in the instant case. Assessee would also be eligible for benefit of indexation. Having held that the asset transferred is a long term capital asset, the next question that arises for our consideration is whether the indexation benefit for cost of acquisition should be allowed to the assessee, based on the payments made in instalments and applying the cost inflation index in the relevant year of payment. We find that assessee itself had claimed indexation benefit by applying the cost inflation index in the year of payment of instalments. Hence, there is no dispute that arises in this regard. We direct the ld. AO to accept long term capital gains returned by the assessee on sale of this flat and delete the addition made on account of capital gains made in this regard. Treatment of repairs and renovation expenses incurred by the assessee on the leased premises - HELD THAT - From the perusal of each of those bills which are in great detail, the assessee had identified the specific items which are giving enduring benefit to the assessee and accordingly, had capitalized the same in the books of accounts and claimed depreciation accordingly, both under the companies Act as well as under the Income Tax Act. In respect of items where no enduring benefit is available, the assessee had duly charged off as revenue expenditure. No infirmity in the action of the assessee on treating the said expenditure as revenue expenditure. CIT(A) had categorically given a finding that none of the expenditure entails any structural change or extension or improvement of the building. This finding has not been controverted by the ld. DR before us. CIT(A) ought not to have treated the said expenditure as capital in nature - expenditure incurred should be allowed as revenue expenditure. Reliance on the case of CIT vs. Talathi and Panthaky Associated (P) Ltd., 2012 (2) TMI 82 - BOMBAY HIGH COURT wherein it was held that cost of repairs / reconstruction of tenanted premises is revenue in nature and allowable as deduction. Respectfully following the aforesaid decision, the ground No.iii raised by the assessee is allowed. Disallowance of foreign travel expenditure @20% of total expenditure on an adhoc basis - As pleaded by the assessee before the ld. CIT(A) that the Managing Director had incurred various expenses during his foreign travel which is meant for business purposes and had incurred various expenses on behalf of the company - HELD THAT - We find that the entire foreign travel expenses of the employees of the assessee company have been duly allowed in full by the ld. AO. Admittedly, the Managing Director of the assessee company is also an employee of the company and hence, he cannot be treated in a different manner with that of the other employees with regard to allowability of foreign travel expenditure for business purposes. Accordingly, we direct the ld. AO to allow the entire foreign travel expenditure and delete disallowance made on an adhoc basis - Decided in favour of assessee.

Summary

Issues Involved:
1. Computation of capital gains on the sale of property.
2. Treatment of repairs and renovation expenses on leased premises.
3. Disallowance of foreign travel expenditure.

Detailed Analysis:

1. Computation of Capital Gains on Sale of Property:
The primary issue was whether the capital gains from the sale of a flat should be treated as long-term or short-term. The assessee argued that the flat was a long-term capital asset, as it was booked and allotted in June 2005, with payments made in installments, and sold in July 2012. The Revenue contended that since the flat was registered in the assessee's name in May 2012 and sold shortly after, the gains should be short-term. The Tribunal referred to the jurisdictional High Court's decision in PCIT vs. Vembu Vaidyanathan, which held that the date of allotment is relevant for determining the holding period. Consequently, the Tribunal concluded that the asset was a long-term capital asset, allowing the assessee to benefit from indexation. The AO was directed to accept the long-term capital gains as returned by the assessee and delete the addition made on this account.

2. Treatment of Repairs and Renovation Expenses on Leased Premises:
The AO had questioned the nature of renovation expenses amounting to ?26,50,292 incurred through Ahmed Interiors, treating them as capital in nature. The assessee provided detailed bills, distinguishing between expenses with enduring benefits (capitalized) and those without (charged off as revenue expenditure). The CIT(A) found no structural changes or improvements to the building, supporting the assessee's treatment of these expenses as revenue. The Tribunal upheld this view, referencing the High Court's decision in CIT vs. Talathi and Panthaky Associated (P) Ltd., which classified repair/reconstruction costs of tenanted premises as revenue expenditure. Thus, the AO was directed to allow the ?26,50,292 as revenue expenditure.

3. Disallowance of Foreign Travel Expenditure:
The AO had disallowed 20% of the Managing Director's foreign travel expenses on an ad hoc basis due to insufficient details, amounting to ?4,21,152. During appellate proceedings, the assessee provided comprehensive details and bills of the foreign travel expenses, demonstrating that these were incurred for business purposes. The Tribunal noted that the AO had allowed the entire foreign travel expenses for other employees and concluded that the Managing Director, also an employee, should not be treated differently. Therefore, the AO was directed to allow the full foreign travel expenditure and delete the disallowance.

Conclusion:
The appeal was allowed in favor of the assessee, with the Tribunal directing the AO to accept the long-term capital gains, allow the renovation expenses as revenue expenditure, and permit the full foreign travel expenses. The order was pronounced on 30/08/2021.