|CORAM:||D. T. Garasia (JM)|
|SECTION(S):||2(42A), 2(47), 45, 48|
|CATCH WORDS:||capital gains, long-term capital asset|
|COUNSEL:||Nilesh Patel, Viraj Mehta|
|DATE:||February 13, 2017 (Date of pronouncement)|
|DATE:||March 6, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Capital gains: While s. 2(42A) uses the term "held", the other provisions use the terms "acquired", "purchased" and "owner". Accordingly, for considering whether an asset is a "long-term capital asset", the period of holding must be computed on a de facto basis. The letter of allottment, even though not "ownership", must be taken as the date of holding the asset|
(i) Perusal of the definition of the term “short-term capital asset” in section 2(42A) shows that the legislature has used the expression ‘held’. It is further noted by us that in various other allied or similar sections, the legislature has preferred to use the expression ‘acquired’ or ‘purchased’ e.g. in section 54 / 54F. Thus, it shows that the legislature was conscious while making use of this expression. The expressions like ‘owned’ has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assessee started holding the asset on de facto basis.
(ii) It is noted that the letter of allotment was issued to the assessee on 11-04- 2005, the letter of allotment makes a mention of the identity of the flat as office unit No.107, located at First Floor of Everest Grande. It also makes a mention that total consideration of the said property is a sum of Rs.29,64,000/- out of which a sum of Rs.5 lakhs was paid by the assessee on 04-04-2005 by cheque No.539104 as part payment against the said office unit. It is further noted by us that Hon’ble Karnataka High Court in the case of CIT vs A Suresh Rao 223 Taxmann 228 (Kar) dealt with similar issue wherein the significance of the expression ‘held’ used by the legislature has been analysed and explained at length. Hon’ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various situations and also circulars issued by the CBDT on this issue.
(iii) Thus, from the aforesaid judgment, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.
(iv) Similarly, in the case of Madhu Kaul (supra), the Hon’ble Punjab & Haryana High Court analysed various circulars and provisions of the Act that on allotment of flat and making first installment the assessee was conferred with a right to hold a flat which was later identified and possession delivered on later date. The mere fact that possession was delivered later, would not detract from the fact that assessee (allottee) was conferred a right to hold the property on issuance of an allotment letter. The payment of balance amount and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee.
(v) In the case of Vinod Kumar Jain vs CIT 344 ITR 501 it was held by Hon’ble Punjab & Haryana High Court that conjoined reading of section 2(14), 2(29A) and 2(42A) clarifies that holding period of the assessee starts from the date of issuance of allotment letter. Since allottee gets title of the property on the issuance of allotment letter and payment of first installment is only a consequential action upon which delivery of possession flows. Even if the sale deed or agreement to sell is executed or registered subsequently but the assessee always had a right in the property since the date of issuance of allotment letter. Therefore, it can be said that assessee held the property immediately from the date of allotment letter.
(vi) In the case of CIT vs K Ramakrishnan (supra), Hon’ble Delhi High Court analysed the provisions of the Act and held that date of allotment is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. Similarly in the case of CIT vs S.R. Jeyashankar(supra), Hon’ble Madras High Court took a similar view following the aforesaid judgment and held that holding period shall be computed from the date of allotment. It is noted by us that similar view has been taken by other High Courts in the judgments which have been relied upon by the Ld. Counsel before us and mentioned in earlier part of our order.
(vii) In the assessment order, the Ld. AO has placed reliance upon the judgment of Hon’ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd (supra) for the proposition that transfer of a property shall be effective only on registration of conveyance deed in view of section 54 of Transfer of Property Act. In our view, it is a settled proposition of law and there is no dispute on that. The absolute legal ownership of an immovable property shall take place in terms of various provisions of Transfer of Property Act which needs to be read with provisions of section 2(47) of Income-tax Act, 1961 for the purpose of computing tax liability arising on account of sale / purchase of immovable properties under Income-tax Act. But the issue here before us is different. As discussed earlier, the holding period is to be determined in terms of section 2(42A) of the Act which has been reproduced and discussed above. The issue of transfer of ownership is not the issue to be decided here for computing the holding period. Therefore, we find that application of the ratio of aforesaid judgment would not be appropriate here.
(viii) Thus, respectfully following the judgements of various High Courts wherein this very issue has been analysed in detail as discussed above at length, we find that holding period should be computed from the date of issue of allotment letter. If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain.
1. Madhu Kaul v. CIT (2014) 363 ITR 54 (P&H HC)
2. CIT v. K Ramakrishnan (2014) 363 ITR 59 (Del HC)
3. CIT v. S R Jeyashankar (2015) 373 ITR120 9Mad HC)
4. CIT v. A Suresh Rao (2014) 223 Taxmann 228 (Kar HC)
5. Vinod Kumar Jain v. CIT (2012) 344 ITR 501 (P&H_HC)
6. CIT v. Jitendra Mohan (2007) 165 Taxman 524 (Del HC)
7. CIT v. Panchand Gandhi (2005) 279 ITR52 (Guj HC)
8. CIT v. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj)
9. Lahar Singh Siroya v. ACIT (2016) 138 DTR 331 (Kar-HC)
10. Vijay Harnilapurkar v. DCIT ITA No.6048/M/2013
11. ACIT v. Vandana Rana Roy ITA No.6173/M12011
12. Meena Hernnani vs ITO ITA No.5998/M/2010
13. Sneha Bimal Parekh v. CIT ITA No.5489/M/2015
14. Surnatichand Tolamal Gouti v.DCIT ITA No.2009/M/2013
15. Circular: No. 471, dated 15-10-1986 162 ITR(St)41
16. Circular : No. 672, dated 16-12-1993 205 ITR(St) 47
i am sending you details judgement for you to review and comment.