Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE BENCHES : “A”, BANGALORE
Before: SHRI PRADIP KUMAR KEDIA, AM & SMT.BEENA PILLAI, JM
PER PRADIP KUMAR KEDIA: AM
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-3, Bengaluru [CIT(A) in short] dated 31-08-2018 arising in the order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (‘The Act’) relating to assessment year 2012-13.
(B)/2018 2 2. The Assessee has challenged the action of the revenue in rejecting the stand of the assessee that the entire capital gains in question should be treated as long term capital gains and consequent benefit u/s 54F of the Act should be given in full as claimed by the Assessee.
Briefly stated, the assessee is an individual having income from salary, house property and other sources. For the assessment year 2012- 13, the assessee has also derived income under the head ‘capital gains’. The return of income declaring total income by the assessee at Rs.4,31,040/- was subjected to scrutiny assessment. In the course of scrutiny assessment, the AO inter alia disputed the claim of the assessee towards long term capital gains arising on transfer of certain parcel of land (site no.37) during the year. The AO held the income arising from sale of land at site no. 37 to be in the nature of Short Term Capital Gains. Consequently, The AO denied the benefit of exemption claimed under S. 54F of the Act.
The CIT(A) in first appeal endorsed the action of the AO.
5 Aggrieved, the assessee preferred appeal before the Tribunal.
When the matter was called for hearing before the Tribunal, the ld. Counsel for Assessee submitted a brief background facts relating to the transaction resulting to capital gains as follows 6.1 The Assessee was originally allotted a site bearing No.37A (situated at Domlur II Stage, Bangalore) by Bangalore Development Authority (BDA) on March 27, 2003 out of the discretionary quota of the Government of Karnataka for a concessional consideration of Rs.6,48,480/-. The site measured 370.56 sq.mtrs. (3,987sq.ft.). The consideration was paid by the assessee on 15 th October, 2003. Thereafter, (B)/2018 3 the assessee again approached the BDA requesting them to allot yet another oddly shaped additional marginal area (site no.37) integrally attached to the site no.37A measuring 70.40 sq.mts. (758 sq.ft.) on the ground that the said side 37 cannot possibly be used for any other purposes by the BDA. The BDA accepted the request of the assessee and allotted the additional area (site no.37) also to the assessee on January 2, 2008 for the then prevailing consideration of Rs.28,18,605/ -. The consideration was actually paid by the assessee on April 3, 2009. The BDA ultimately executed the sale deed in favour of the assessee on November 26, 2009. The BDA allotted a single PID No. to both sites together as 72-30-37-37A.
6.2 The assessee sold both the sites (site no.37 and 37A) together as a single plot measuring 440.96 sq.mts. (4,745 sq.ft.) for a sale consideration of Rs. 2,80,00,000/- on November, 21, 2011. The assessee reinvested the sale proceeds in a new house to the extent of Rs.2,79,25,124/- by August 21, 2014 and claimed deduction u/s 54F while computing the capital ga ins.
6.3 In the context of above background facts, the Ld. Counsel submitted that the AO has disputed the claim of LTCG on transfer of the Site no. 37 having regard to the period of holding. The AO computed the period of holding of capital asset at site no.37, with reference to the date of sale deed executed in favour of the assessee on 26-11-2009 and regarded the gain arising from sale of the plot by the assessee on 21-11-2011 to be ‘short term capital gains’.
6.4 The Ld. Counsel strongly submitted that the land bearing site no.37, which was oddly shaped and connected to site no.37A, was actually held in possession of the assessee since 2003. The development authority has accepted the case of the assessee for formal transfer of the odd shaped site (site no.37A) and issued the allotment letter dated 02-01-2008 for a (B)/2018 4 consideration determined at Rs.28,18,605/-for an area of 70.40sq.metrs.(758.sq.ft). It was submitted that in pursuance of allotment letter, the assessee has made the payment of the exact amount to the authority on 03-04-2008 as per stipulated terms of the allotment. It was thus contended that consequent on fulfillment of terms of payment, the allotment letter became effective and the rights accrued therefrom stood vested with the assessee from the date of acceptance of payment. It was also pointed out that a formal registration of the site no.37 also occurred in favour of the assessee albeit on 26-11-2009. It was however insisted that where the site was in actual possession and the allotment was carried out in January 2, 2008 which became effective in April 3, 2008, the period of holding needs to be counted from the date of allotment or from the date of payment in consequence thereto and once this is done, the period of holding would exceed period of 3 years and the capital asset (site no. 37) would be regard as Long term capital asset prior to its transfer.
6.5 In support of the its claim that gains arising on sale of Site no. 37 is required to be held as LTCG as claimed ( and not STCG as held by AO), it was canvassed that a definite right on the capital asset had accrued in favour of the assessee and effective possession was also lying with the assessee and therefore, the date of allotment letter or at best date of payment in pursuance of such allotment letter should be reckoned for the purpose of determination of period holding to ascertain nature of capital gains. It was submitted that although registration deed has been executed at a later date in Nov. 2009, the right had accrued to the assessee on allotment of land in its favour and therefore mere delay in registration would not take away the rights of the assessee to claim the capital gains to be of long term nature.
ITA No.2958(B)/2018 5 6.6 The ld. AR thus submitted that the revenue authorities have committed error in ignoring the factum of definite allotment in favour of the assessee and have relied upon the date of sale deed executed at a later date and thus, wrongly denied the benefit accruing from sale of long term capital asset. The ld. AR accordingly urged that the action of the revenue authorities be reversed and the position claimed by the assessee towards LTCG be restored.
The ld. DR on the other hand, relied upon the order of the AO and the CIT(A) and submitted that unassailable right has accrued in favour of the assessee only on registration of sale deed in favour of the assessee towards site no.37 in question. The period of holding when reckoned from the date of sale deed, it comes to less than 3 years and thus site no.37 cannot be branded as long term capital asset under s.2(29A) of the Act and thus not eligible for consequential benefits under law. The ld.DR relied upon the decision of the Hon’ble Karnataka High Court in the case of CIT Vs V.V.Modi..281 ITR 1, (1996)(Kar.) for the preposition that ownership is conferred on the assessee only from the date of execution of sale deed.
We have carefully considered the rival submissions. The short issue placed for our determination is whether the period of holding of capital asset for the purposes of classification of capital gains is to be seen with reference to date of allotment of land or from the date of formal execution of sale deed for registration. Whereas it is the case of the assessee that the letter of allotment issued by BDA in respect of land parcel (Site no. 37) in question has given effective right to the assessee to assert its command on the asset which right is includible in the expression ‘property’ for the purpose of s.2(14) of the Act, defining the expression ‘capital asset’, the revenue on the other hand, seeks to advance an argument that the allotment letter by itself does not generate any right, title, interest in the (B)/2018 6 asset and the effective right on the land get vested from the date of execution of sale deed and not prior thereto.
8.1 In the context of the issue involved, We observe at the outset that the expression ‘capital asset’ under S. 2(14) of the Act has a wide connotation. The issue whether letter of allotment would give effective right over the capital asset pending execution of formal agreement spelling out all the exact terms and conditions for acquisition has been comprehensively settled in favour of the assessee by the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Vembu Vaidyanathan 101 Taxmann.com 436(Bom.) The Hon’ble Bombay High Court has taken note of CBDT circular no. 471 dated 15 th October 1986 as well as CBDT circular 672 dated 16th Dec. 1993 and concluded that the assessee shall be deemed to have acquired rights in the property on the date of issue of allotment letter for the purposes of expression ‘capital asset’. The SLP against the aforesaid decision has been dismissed by the Hon’ble Supreme Court in 108 Taxmann.com 339(2019).
8.2 On facts, the assessee in the instant case has not only been issued allotment letter, he has also made full payment to the authority concerned immediately thereafter. Thus, the asset is required to be held as long term capital asset even if the later date of payment is reckoned. Hence, the gains arising on sale of such asset has been correctly claimed as ‘Long term capital gains.’ Consequently, all the benefits flowing from such gains would be entitled to the assessee.
8.3 The decision relied upon by the revenue in the case of V.V.Modi (supra) is distinguishable. The matter in that case relates to assessment year 1982-83. As rightly pointed out on behalf of the assessee, the provisions of Section 2(47) relating to definition of ‘transfer’ of capital asset has undergone a change and sub-clause (v) has Act has been inserted (B)/2018 7 which addresses the present situation. The ratio of decision in V V Modi is thus no longer applicable in fact situation.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 6th March 2020.