2025 (3) TMI 922 - AT - Income Tax

Gain on sale of residential flat - LTCG or STCG - Period of holding - contention of the assessee that for the purpose of capital gains the period of holding should reckoned from the date of registration when the flat was allotted - HELD THAT - The period of holding is to be computed from the date of issue of allotment letter. The facts in assessee s case is in a better position since the assessee has entered into an agreement of allotment which is registered on 03.10.2016 whereby the assessee has acquired the title and interest in the impugned property. The fact that the final payment towards purchase of the property was made on 21.08.2019 cannot be the only reason for treating the asset as Short Term Capital Asset. Therefore we see merit in the contention of the ld. AR that the period of holding in assessee s case should be reckoned from the date of agreement i.e. 03.10.2016. From the perusal of the Capital Gain computation as extracted in the earlier part of this order we notice that the assessee has claimed the benefit of indexation only for the payment made as per agreement dated 03.10.2016 and that the assessee has not indexed the payments made during the Financial Year (FY) 2019-20. No infirmity in the computation of Capital Gain done by the assessee. Assessee has correctly claimed the gain on transfer of property purchased vide agreement dated 03.10.2016 as LTCG. We direct the AO to delete the addition made by treating the gain as STCG and give relief to the assessee accordingly.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the gain from the sale of the property should be treated as Long Term Capital Gain (LTCG) or Short Term Capital Gain (STCG).
The appropriate date to consider for determining the period of holding of the property for capital gains tax purposes.
The applicability of judicial precedents and circulars cited by the assessee regarding the period of holding for capital gains.
The correctness of the Assessing Officer's (AO) decision to levy interest and initiate penalty proceedings under sections 234 and 270A of the Income Tax Act.

ISSUE-WISE DETAILED ANALYSIS

1. Classification of Capital Gain as LTCG or STCG

Relevant Legal Framework and Precedents: The classification hinges on the period for which the property was held. The Income Tax Act specifies that a holding period of more than 36 months qualifies for LTCG treatment, while less than that is STCG. The case also referenced judicial precedents and CBDT Circulars No. 471 and 672, which clarify the treatment of allotment letters in determining the holding period.
Court's Interpretation and Reasoning: The Tribunal examined whether the date of the registered purchase agreement (03.10.2016) or the date of final payment and possession (21.08.2019) should determine the holding period. It emphasized the significance of the registered agreement date in establishing ownership rights.
Key Evidence and Findings: The Tribunal noted that the registered agreement dated 03.10.2016, where the assessee was designated as a purchaser, was pivotal. It also considered the sale agreement dated 19.06.2019, which acknowledged the assessee's ownership rights from the 2016 agreement.
Application of Law to Facts: The Tribunal applied the principle that the holding period should be computed from the date of the registered agreement, aligning with the precedent set in Minaxi Mahesh Pawania vs ITO and other similar cases.
Treatment of Competing Arguments: The Tribunal addressed the AO's argument that the final payment date should determine the holding period. It rejected this, emphasizing the legal and practical implications of the registered agreement date.
Conclusions: The Tribunal concluded that the gain should be treated as LTCG, as the holding period exceeded 36 months when calculated from the date of the registered agreement.

2. Applicability of Judicial Precedents and Circulars

Relevant Legal Framework and Precedents: The Tribunal considered previous decisions, including the Supreme Court's ruling in Sanjeev Lal v. CIT, which recognized rights accruing from agreements and allotment letters.
Court's Interpretation and Reasoning: The Tribunal found the cited circulars inapplicable as they pertain to construction cases under sections 54 and 54F. However, it acknowledged the broader principle from judicial precedents that rights established by agreements are significant for determining holding periods.
Conclusions: The Tribunal upheld the principle that the holding period should be calculated from the date of the agreement or allotment letter, aligning with established precedents.

3. Levy of Interest and Penalty Proceedings

Relevant Legal Framework: Sections 234 and 270A of the Income Tax Act deal with interest and penalty for underreporting and misreporting of income.
Court's Interpretation and Reasoning: The Tribunal did not explicitly address the interest and penalty issues in detail, as the primary focus was on the classification of the capital gain.
Conclusions: By allowing the appeal and classifying the gain as LTCG, the Tribunal implicitly negated the basis for penalty and interest, as the initial classification by the AO was incorrect.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The ratio laid down is that the period of holding is to be computed from the date of issue of allotment letter. The facts in assessee's case is in a better position since the assessee has entered into an agreement of allotment which is registered on 03.10.2016 whereby the assessee has acquired the title and interest in the impugned property."
Core Principles Established: The holding period for capital gains tax purposes should be calculated from the date of the registered agreement or allotment letter, rather than the date of final payment or possession.
Final Determinations on Each Issue: The Tribunal determined that the gain should be classified as LTCG, and directed the AO to adjust the assessment accordingly, thereby nullifying the penalty proceedings initiated under section 270A.