2024 (11) TMI 684 - AT - Income Tax

Capital Gains on Sale of Office Premises - LTCG or STCG - entitlement to exemption u/s 54F - Determination of date of allotment when the property was ready OR Date of provisional allotment of the property, date of booking, payment made over the years to the builder towards acquisition of immovable property and the period of construction of the property - HELD THAT - It is an undisputed fact that a letter of allotment was issued by the builder to the assessee by which a right to own the flat had accrued on the assessee. The right which accrued to the assessee is the booking right, i.e., the right to purchase the flat and obtain the title. It is not in dispute that the assessee has not defaulted on the terms and conditions of the letter of allotment. Assessee has made all the payments as required under the letter of allotment which has been duly acknowledged in the subsequent registration of the agreement to sell. The assessee has furnished details of payments made in each of the years. The consequence of the issuance of a letter of allotment for the flat signifies a contractual arrangement between the assessee and the builder by which a right in persona is created in favor of the assessee. When such a right is created in favor of the assessee, the builder is restrained from selling the said identified flat to someone else because the assessee in whose favor the right in persona is created, has a legitimate right to enforce specific performance in terms of the said letter of allotment, if the builder, for some reason is not executing and complying with the terms stated therein. A right in personam had been created in favor of the assessee in whose favor the letter of allotment had been issued and who has paid 20% of the total agreed consideration as advance. Based on the facts and circumstances mentioned above, we are of the view that the sale of the above stated premises is in the nature of long term asset resulting in long term capital gains on which the assessee is also eligible to deduction in terms of section 54F. The addition made is accordingly deleted and claim of the assessee is LTCG is restored. Since the applicability of section 54F was not examined by the lower authorities, the same would be examined by the Assessing officer in the light of the relevant provisions of the Act and subject to fulfilment of requisite conditions therein, the AO would allow the claim as well. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Classification of Capital Gains as Long-Term or Short-Term.
2. Eligibility for Exemption under Section 54F of the Income Tax Act.

Detailed Analysis:

1. Classification of Capital Gains as Long-Term or Short-Term:

The primary issue in this case was whether the capital gains arising from the sale of office premises should be classified as Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG). The assessee argued that the gains should be classified as LTCG, as the allotment and payments for the property began much earlier than the date of possession. The Assessing Officer (AO) and the CIT(A) treated the gains as STCG, based on the date of the allotment letter dated 30.07.2010, which was within 36 months prior to the sale date of 12.03.2013.

The Tribunal noted that the assessee had been making payments towards the office premises since 1992, with provisional allotment occurring much earlier than the formal allotment in 2010. The Tribunal emphasized that the right to the property was established with the initial payments and provisional allotment, and thus the holding period should be calculated from that time. The Tribunal cited several precedents where the date of allotment was considered the starting point for computing the holding period for capital gains purposes, reinforcing the view that the property was a long-term asset.

2. Eligibility for Exemption under Section 54F:

The second issue was the denial of exemption under Section 54F, which is applicable to LTCG. Since the AO classified the gains as STCG, the exemption was initially denied. However, the Tribunal, after reclassifying the gains as LTCG, held that the assessee was eligible for the exemption under Section 54F, subject to the fulfillment of necessary conditions.

The Tribunal directed the Assessing Officer to examine the applicability of Section 54F in light of the relevant provisions and the conditions prescribed therein. The Tribunal emphasized that the assessee had made substantial investments and fulfilled the conditions for the exemption, thus restoring the claim for LTCG and directing the AO to allow the exemption under Section 54F, provided all conditions are met.

Conclusion:

The Tribunal concluded that the sale of the office premises resulted in Long-Term Capital Gains, and the assessee was eligible for an exemption under Section 54F. The appeal was allowed, and the addition made by the AO was deleted. The Tribunal's decision was based on the interpretation of the holding period from the date of provisional allotment and initial payments, aligning with established legal precedents.