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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI M. BALAGANESH
PER MAHAVIR SINGH, JUDICIAL MEMBER
This appeal is filed by the assessee against the order of CIT(A)-42, Mumbai dated 01.03.2016 for assessment year 2011-12 which in turn has arisen from order of Assessing Officer passed under Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 25.02.2014.
2. The only issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the Assessing Officer in treating the sale proceeds out of residential flats sold as Short Term Capital Gain as against declared by 2 Dinesh Dattatray Borude Long Term Capital Gain. For this, assessee has raised the following grounds: -
“1. Date of acquisition of a residential flat sold and period of holding thereof
On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the treatment of the long-term capital gain on sale of the residential flat at Goregaon as “short-term” by adopting the date of the registered agreement with the builder as the date of acquisition instead of adopting the date of allotment letter/date of payment of the full purchase consideration as the date of acquisition of the flat.
The appellant prays that the date of allotment letter/payment of the purchase consideration be adopted as the date of acquisition of the flat and accordingly the capital gain/loss arising on sale thereof be treated as “long-term”.
“Ownership right” in a residential flat itself was a “capital asset” held for “long-term”.
On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that, in substance, what the appellant acquired in 2006 (on the issue of the allotment letter/payment of the full consideration) was “ownership right” in a flat and what the appellant sold in 2010 was nothing but the “ownership right” in a flat and as such the “ownership right” itself constituted a “capital asset” and hence the capital gain arising on sale thereof was “long-term”.
The appellant therefore prays that the capital gain arising on sale of the capital asset being “ownership right” in a flat be held as “long-term”.
Briefly stated, facts are that the assessee, an individual, filed its return of income for relevant assessment year 2011-12 on 30.07.2011. The assessee
3 Dinesh Dattatray Borude Long Term Capital Gain of Rs.22,64,455/-. The assessee declared Long Term Capital loss out of sale of property bearing no. 503, 5th floor, B-wing, Veronica Mahindra Eminente, S.V. Road, Goregaon (W), Mumbai 400 062, amounting to Rs.35,34,489/-. The assessee gave following details of date of purchase, date of sale, purchase cost, sale consideration, indexed cost and Long Term Capital Gain :-
Date of Purchase Indexed cost Date of Sale Long term purchase cost (Rs.) (Rs.) sale consideration capital loss (Rs.) (Rs.) 18.09.2006 1,21,84,084/- 1,55,34,489/- 04.08.2010 1,20,00,000/- 35,34,489/-
The assessee claimed that the property was allotted by builder to the assessee vide allotment letter dated 18.09.2006 and assessee also paid sum of Rs.5,56,000/- on 18.09.2006 and a sum of Rs.1,05,59,500/- on 20.10.2006, but according to the Assessing Officer, the assessee has purchased this property actually on 27.07.2010 when the assessee and the builder entered into final agreement for sale. The Assessing Officer held that by the letter of allotment of builder dated 18.09.2006, the builder had merely reserved a flat in the building to be constructed by the builder and assessee has not obtained the flat on that date. The CIT(A) also upheld the action of the Assessing Officer after considering the decision of the Hon'ble Delhi High Court in the case of Gulshan Malik vs Commissioner of Income Tax [2014] 223 Taxman 243 (Delhi). For this, CIT(A) concluded the issue by observing as under :-
“To conclude it is held that the decision of the Supreme Court in Sanjeev Lal v. CIT (2014) 365 ITR 389 (SC) and the decision of the Delhi High Court in Gulshan Malik v. Commissioner of Income-tax)/[2014] 223 Taxman 243 (Delhi) and the Mumbai ITAT in Mrs. Lata Vasudeva v. Addl. CIT [2011] 10 taxmann.com 96 (Mum) have all distinguished as to 4 Dinesh Dattatray Borude when does the right over an immoveable property comes in existence and these cases go against the assessee. Further the facts of the assessee’s case as detailed above inform that the assessee got the right over the Flat only when an agreement to sell was entered into by the assessee with the builder on 27/07/2010 and not earlier. Lastly it has not been explained by the assessee as why the property has been purchased and sold in joint names and as to what is the legal status of the tax liability of the joint owners. Since the assessee has declared the entire investment in his own hands, this issue is not deliberated. Lastly it has been pointed out that the case laws cited by the assessee are either reversed by the Supreme Court or they relate to the beneficial sections of the Act for deduction from the capital gains and such decision shave been rendered in different contexts e.g. sections 54/54F etc speak of purchase or construction of residential house and the Courts have taken a view that making of payment to a builder is akin to purchasing a house etc. These decisions are not applicable in the present case because here the question is as to when the asset being sold by the assessee was transferred to the assessee in the first place. The various decisions including the Supreme Court have held that the transfer happens only after an agreement of sale is entered into and a right in personam is created. In view of the above discussion, the assessee’s ground of appeal no. 2 is dismissed.”
Aggrieved, assessee is in appeal before the Tribunal. 5. At the outset, the learned counsel for the assessee argued that the said issue has been decided by the Hon'ble Bombay High Court in the case of Pr. Commissioner of Income Tax vs Vembu Vaidyanathan in of 2016, wherein the Hon'ble Bombay High Court vide para 5 as held as under :-
“5. This aspect was further clarified by the CBDT in its later circular No.672 dated 16th December, 1993. In such circular representations were made to the board that in cases of allotment of flats or houses by co-operative societies or other institutions whose schemes of allotment and consideration are similar to those of D.D.A., similar view should be 5 Dinesh Dattatray Borude 15th October, 1986. In the circular dated 16th December, 1993 the board clarified as under:
"2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No.471, dated 15-10-1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act."
It can thus be seen that the entire issue was clarified by the CBDT in its above mentioned two circulars dated 15th October, 1986 and 16th December, 1993. In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property. There is nothing on record to suggest that the allotment in construction scheme promised by the builder in the present case was materially different from the terms of allotment and construction by D.D.A.. In that view of the matter, CIT appeals of the Tribunal correctly held that the assessee had acquired the property in question on 31st December, 2004 on which the allotment letter was issued.”
We noted that the above decision of the Hon'ble Bombay High Court has settled the issue and held that once the letter of intent or allotment is issued to the assessee by the builder and assessee makes booking price to the builder, that date will constitute as the date of allotment for the purpose of computation of Long Term Capital Gain out of the sale proceed of the flat. We also noted that the assessee has set-off this Long Term Capital Loss against the gain arising from sale of two other properties and declaring Long Term Capital Gain of Rs.22,64,445/-. As the issue is squarely covered in favour of the assessee, we reverse the orders of the lower authorities and allow the appeal of the assessee on this issue.
6 Dinesh Dattatray Borude
The next three grounds, i.e. ground nos. 4 to 6 are consequential and benefit of indexation and set-off of Long Term Capital Loss is to be allowed as per the scheme of the Act.
In the result, appeal of the assessee is allowed in terms of the above.
Order pronounced in the open court on 5th November, 2019.