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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
1. This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-29, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The 1st ground of appeal On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of AO in treating the capital gains as short term capital gains and thereby adding a sum of Rs.28,37,500/- as against long term capital gains of Rs.15,39,759/- claimed by the appellant as per grounds stated in the order or otherwise. 2.1 Briefly stated, the facts are that during the year, the assessee had offered Long Term Capital Gains (LTCG) of Rs.15,39,759/- (after indexation) from sale of house property viz. Flat No. 2004, 20th Floor, ‘A’ Wing, Dr. B.A. Marg, Chinckpokali (E), Mumbai-33 for a consideration of Rs.54,00,000/- on 12.10.2010. During the course of assessment proceedings, the Assessing Officer(AO) noticed that the assessee had purchased the said property for a consideration of Rs.25,62,500/- vide registered agreement dated 05.05.2009 and not on 12.10.2010, as claimed by the assessee. Therefore, the AO observed that the capital gain arising out of such consideration is in the nature of Short Term Capital Gains (STCG). In response to a query raised by the AO to explain the same, the authorized representative of the assessee by the written submission dated 07.03.2014, which is as under: “Your honour has asked as to why capital gain on sale of flat should not be considered as short term capital gain instead of long term capital gains disclosed in the Balance Sheet as the purchase agreement was dated 05.05.2009, whereas the sale agreement is dated 12.10.2010. In this respect, we would like to state that as per Circular No. 471 dated 15.10.1986 when an allotment letter is issued to an allottee on payment of first installment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking delivery of possession is only a formality. And, therefore, in the present case, the allotment letter is received by the assessee on 28.11.2006 and therefore the right in that property is acquired on the same day and hence the same is taken as date of acquisition and accordingly it is correctly considered as long term capital gain. Therefore, there is no addition called for on this aspect.” However, the AO was not convinced with the above explanation of the assessee for the reason that the date of purchase/acquisition has to be taken to be the date on which purchase agreement was registered. Referring to the sale agreement, the AO observed that such property was purchased on the date of registration i.e. 05.05.2009. Also referring to Circular No. 471 dated 15.10.1986 issued by CBDT, the AO noted that the same is applicable only to the self financing scheme of the Delhi Development Authority. Accordingly, the AO rejected the claim of LTCG of Rs.15,39,759/- made by the assessee and brought to tax the STCG of Rs.28,37,500/-. 2.2 In appeal, the Ld. CIT(A) observed that the assessee had approached J. Gala Builders with a request to reserve Flat No. A-2004 on 20th floor, A Wing admeasuring 663 sq. ft. of carpet area along with one car parking in the building named MERU being constructed by J. Gala Builders. The builder vide their letter dated 28.11.2006 addressed to the assessee, had mentioned that at their request, they agreed to reserve the captioned flat for him on fulfillment of various conditions. As per the Ld. CIT(A), the letter talks about the standard agreement which has to be entered by the assessee, the stamp duty and registration charges shall be borne and paid exclusively by the assessee on the letter of reservation and the agreement to be entered. Thus as per the Ld. CIT(A) this letter does not confer any right of ownership to the assessee; it is a mere reservation of flat of which the assessee will get the ownership on fulfillment of certain conditions. Thus the finding arrived at by him is that the agreement for sale itself is registered on 05.05.2009 and if any date has to be taken as the date of acquisition, it can only be this date of agreement for sale and not any earlier date. Thus when the date of acquisition is 05.05.2009 and the date of transfer of property i.e. sale is 12.10.2010, the period of holding is less than 36 pounds and the gain arising from this transfer is STCG. On the basis of the above reasons, the Ld. CIT(A) dismissed the appeal on the above ground filed by the assessee. 2.3 Before us, the Ld. counsel of the assessee files a Paper Book (P/B), containing (i) Copy of allotment letter dated 28.11.2016 issued by J. Gala Builders to the assessee, (ii) Copy of ledger account of J.Gala Builders in the books of assessee specifying the payments made for the purchase of the flats, and (iii) Copy of Purchase Agreement( Agreement for Sale) dated 05 May 2009 for the Purchase of Flat. Further, the Ld. counsel refers to the following case-laws : Sr. Case Court Decision No.
Pr. CIT v. Vembu Vaidyanathan High Court of For computing capital gain tax, date of Bombay 101 allotment would be date on which taxmann.com purchaser of a residential unit can be 436 stated to have acquired property 2. DCIT v. Deepak Shashi Bhushan ITAT Mumbai 96 In order to determine taxability of capital Roay taxmann.com gain arising from sate of property, it is date 648 of allotment of property which is relevant for purpose of computing holding period and not date of registration of conveyance deed 3. Anita D. Kanjani v. ACIT ITAT-Mumbai 79 In order to determine nature of asset in taxmann.com 67 terms of section 2(42A), holding period has to be computed from date of issue of allotment letter and not from date when agreement to sell was registered.
Ms. Madhu Kaul v. CIT Punjab and Where a flat was allotted to assessee on 7- Haryana HC 43 6-1986 and she paid first instalment on 4- taxmann.com 7-1986 and possession of flat was 417 delivered on a later date and thereafter she sold flat on 5-7-1989, capital gain arising from sale of flat was a long-term capital gain 5. Vinod Kumar Jain v. CIT Punjab and Under self-financing scheme, an allottee Haryana HC 195 gets title to property on issuance of an Taxman 174 allotment letter and payment of instalments is only a consequential action upon which delivery of possession flows - Held, yes - Whether therefore, right of assessee prior to 15-5-1986 was a right in property and even prior to said date assessee was holding said flat - Held, yes - Whether, therefore, capital gain arising on sale of said flat was a long-term capital gain and, consequently, assessee was entitled to set off same under section 54 - Held, yes ___ 6. CIT v. S.R. Jeyshankar Madras HC 53 Where assessee had entered into an taxmann.com agreement with builder for purchase of 107 undivided share of land and construction, date of allotment of undivided share in land was to be adopted as date of acquisition for computing capital gain instead of date of sale deed 7. CIT v. Jindas Panchal Gandhi Gujarat HC 279 Assessee was allotted a flat by a co- ITR 552 operative society on 4-11-1980 and possession thereof was handed over to assessee on 12-9-1983 - Assessee sold property in question on 30-4-1984 - Whether since assessee had held property in question for more than 35 months, capital gains arising out of sale of same was long-term capital gains and assessee would be entitled to deduction accordingly - Held, yes CIT v/s Anilahen /Opendra Shah 8. CIT v. Anilaben Upendra Shah Gujarat HC 262 Assessee had become member of a co- ITR 67 operative housing society by acquiring shares therein on 15-11-1979 - Possession of flat was delivered to assessee in October, 1981 which was sold on 4-12- 1982 - Whether assessee had held shares and allotment of flat in said society for a period of more than 36 months reckoned from 15-11-1979, and, accordingly, capital gain was rightly held by Tribunal to be a long-term capital gain and assessee was rightly entitled to benefit of section 80T- Held, yes 9. CIT v. K. Ramakrishnan Delhi HC 225 In order to determine taxability of capital Taxman 123 gain arising from sale of property, it is date of allotment of property which is relevant for purpose of computing holding period and not date of registration of conveyance deed 10. CIT v. A. Suresh Rao Karnataka HC 41 Assessment year 2009-10 - Whether taxmann.com original site was allotted to assessee prior 475 to 36 months after payment of full value, merely because said allotment was cancelled, and a new site was allotted, in law, would make no difference, admittedly when original consideration paid was treated as consideration for subsequent allotment; capital gains arising on sale of new property would be long term capital gain and assessee was entitled to benefit of exemption under sections 54EC and 54F - Held, yes [Paras 15 to 18] [In favour of assessee] 2.3.1 During the course of hearing, the implication of the decision in the case of CIT v. Balbir Singh Maini 86 taxmann.com 94 (SC), C.S. Atwal v. CIT (2015) was raised by the Bench. In response to it, the Ld. counsel submits that the issue under consideration in Balbir Singh Maini (supra) was whether capital gain was attracted in the said case. The Hon’ble Supreme Court dealt with the issue as to what would be the date of transfer and held that transfer as per section 2(47) would take place only when the contract/agreement is actually registered. Distinguishing the above case, the Ld. counsel submits that in the case of the appellant here, the issue relates to period of holding and not date of transfer and while deciding the period of holding, the provisions of section 2(42A) and 2(29A) comes into play. As per section 2(42A), the assessee is only required to hold the capital asset and not required to become owner or acquire possession of the capital asset. It is stated by him that such holding of a capital asset does not require the asset to be actually transferred as per the provisions of the Transfer of Property Act and the reliance on provisions of section 2(47) by various Courts are only for the limited purpose to show that the definition of capital asset also includes rights in relation to a particular capital asset. In this regard, reliance is placed by him on the decision in Ved Prakash & Sons (HUF) (1994) 207 ITR 148 (P&H). Accordingly, it is submitted by him that the assessee’s contention of calculating the period of holding from the date of allotment is supported by the definition of provision of section 2(42A) of the Act. Finally, it is stated that the allotment letter submitted by the assessee clearly shows the identification of the property, area of property and full consideration to be paid by the assessee and therefore, through the said letter, the assessee has acquired the right and the holding period ought to be calculated from the date of allotment. 2.4 Per contra, the Ld. DR submits that the Ld. CIT(A) has rightly held that when the date of acquisition is 05.05.2009 and the date of transfer of property i.e. sale is 12.10.2010, the period of holding is less than 36 months and the gain arising from this transfer is nothing but STCG. 2.5 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We discuss here the case-laws relied on by the Ld. counsel. In the case of Vembu Vaidyanathan (supra), the assessee had filed the return of income for the AY 2009-10 and claimed LTCG arising out of capital asset in the nature of a residential unit. The controversy between the assessee and the revenue revolves around the question as to when the assessee can be stated to have acquired the capital asset. The assessee argued that the residential unit in question was acquired on the date on which the allotment letter was issued by the builder which was on 31.12.2004. The AO however contended that the transfer of the asset in favour of the assessee would be complete only on the date of agreement which was executed on 17.05.2008. The Hon’ble High Court referring to the CBDT Circular No. 471 dated 15.10.1986 and No. 672 dated 16.12.1993 held that “it can thus be same that the entire issue was clarified by the CBDT in its abovementioned two Circulars dated 15.10.1986 and 16.12.1993. 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 DDA. In that view of the matter, CIT(A) and Tribunal correctly held that the assessee had acquired the property in question on 31.12.2004 on which the allotment letter was issued.” In the instant appeal, the issue is not the allotment in construction scheme promised by the builder which is materially same as the terms of allotment and construction by DDA. Thus the case of the assessee in the instant case is distinguishable from the decision in Vembu Vaidyanathan (supra) relied on by the Ld. counsel.
In Vinod Kumar Jain (supra), the assessee was allotted a flat under scheme of DDA on 27.02.1982. Delivery of possession of said flat took place on 15.05.1986 when actual flat number was allotted to the assessee. The assessee sold a flat on 06.01.1989. The assessee claimed that the capital gains arising on sale of flat was a LTCG but according to the revenue, the flat was allotted on 15.05.1986 and therefore, capital gain was STCG. The Hon’ble High Court held that under self-financing scheme, an allottee gets title to property on issuance of an allotment letter and payment of installments is only a consequential action upon which delivery of possession flows. Therefore, right of assessee prior to 15.05.1986 was a right in property and prior to the said date, the assessee was holding the sale flat. Therefore, it held that capital gain arising on sale of said flat was a STCG and consequently, the assessee was entitled to set off same u/s 54. In the instant case, the assessee was not allotted a flat under any self- financing scheme and thus it is distinguishable from the above case. In the instant case, the assessee has not entered into an agreement with builder for purchase of undivided share of land and construction, and therefore, it is distinguishable from the case of S.R. Jeyashankar (supra) relied on by the Ld. counsel. In the instant case, the assessee was not allotted a flat by a co- operative society, and thus distinguishable from the decision in Jindas Panchal Gandhi (supra) relied on by the Ld. counsel.
In the instant case as the assessee has not held shares and allotment of flat in a co-operative housing society, its case is distinguishable from the decision in Anilaben Upendra Shah (supra). In K. Ramakrishnan (supra), the assessee had booked the plot in question with HUDA on June 18th, 1986, and had deposited the earnest money; that the plot was allotted to the assessee on August 3rd, 1999; that on receipt of allotment letter, the assessee had deposited further amounts on various dates, that by the expiry of 60 days from the date of allotment, i.e., by October 3rd, 1999, the assessee had deposited 96% of the tentative cost of the plot; that as per the terms and conditions contained in the allotment letter, since the assessee paid the installment as demanded by the HUDA, the assessee was to become the beneficial owner of the residential plot in question; that as per clause 5 of the allotment letter, a letter of acceptance was to be filed by the assessee along with an amount of Rs.10,155/- within 30 days, thereby having paid 25% of the total cost of the plot; that this amount had to be deposited by the assessee in his capacity as the owner of the plot, on allotment, which was done, as evidenced by the receipt of payment; that as per clause 11 of the allotment letter, the right of the assessee in the allotted plot was an absolute right as owner thereof; that this clause stated that it was till the execution of the conveyance deed, that the assessee was not to be treated as owner of the plot; that as per clause 12, execution of the conveyance deed was not made subject to the handing over of the possession of the plot; that thus, right from 1999, when the plot was allotted to the assessee, the assessee was having absolute rights thereon. A reading of the above facts clearly indicates that the instant case is distinguishable from the decision in K. Ramakrishnan (supra). In the case of A. Suresh Rao (supra), the original site was allotted to the assessee prior to 36 months after payment of full value, the Hon’ble High Court held that merely because the said allotment was cancelled, and a new site was allotted, in law, would make no difference, admittedly when the original consideration paid was treated as consideration for subsequent allotment and capital gains arising on sale of new property would be LTCG and the assessee was entitled to benefit of exemptions u/s 54EC and 54F of the Act. This is not so in instant appeal. In the case of Ms. Madhu Kaul (supra), a flat was allotted to the assessee on 07.06.1986 and she paid first installment on 04.07.1986 and possession of flat was delivered on a later date and thereafter, she sold the flat on 05.07.1989. The Hon’ble High Court held that : “Admittedly, the flat was allotted to the assessee on 07.06.1986 vide letter conveyed on 30.06.1986. The assessee paid the first installment on 04.07.1986. Thereby conferring a right upon the assessee to hold a flat, which was later identified and possession delivered on a later date. The mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance installments, identification of a particular flat and delivery of possession are consequential acts and relate back to an arise from the rights conferred by the allotment letter.” As held at para 7 of the above decision , there is no distinction between Vinod Kumar Jain(supra) and the above case. In the case of Deepak Shashi Bhusan Roy (supra), it is held by the Tribunal that in order to determine taxability of capital gain arising from sale of property, it is date of allotment of property which is relevant for the purpose of computing holding period and not date of registration of conveyance date. In the case of Anita D. Kanjani (supra), the Tribunal held that in order to determine nature of asset in terms of section 2(42A), holding period has to be computed from date of issue of allotment letter and not from the date when the agreement to sale was registered. 2.5.1 We refer now to the ‘Agreement for Sale’ dated 05.05.2009 between M/s J. Gala Builders, partnership firm, having its registered office at 267/71, Narshi Natha Street, Veermani Market, Mumbai- 400009 (owners) and the appellant (purchasers). Also we may refer to relevant paras of the said agreement below: “2.The Purchaser/s hereby agrees to purchase from the Owner and the Owner hereby agrees to sell to the Purchaser/s a flat/shop No. A-2004 carpet area admeasuring 61.64 sq. mtrs i.e. 663.5 sq. feet (which is inclusive of the area of balconies) on 20th floor A Wing as shown on the floor plan thereof hereto annexed and parking space No. ---- in the building to be known as “MERU” (hereinafter referred to as the Flat/shop) for the price of Rs.25,62,500/- including the proportionate price of the common areas and facilities appurtenant to the premises. The Purchaser/s hereby agreed to pay to that Owner balance amount of purchase price of Rs.5,25,312/- in the following manner.” The Hon’ble Supreme Court in Vimal Chand Ghevarchand Jain & ors. vs. Ramakant Eknath Jajoo, 2009 (5) SCALE 59 has observed while dealing with the construction of a document as under : "A document, as is well known, must be construed in its entirety". 2.5.2 In the instant case, there is no dispute that the Purchase Agreement (Agreement for Sale) is dated 05.05.2009. We refer here to page 5-22 of the P/B. Immovable property is not conveyed by delivery of possession, but by a duly registered deed. Further, it is the date of execution of registered document, not the date of delivery of possession or the date of registration of document which is relevant. In the case of Alapati Venkataramiah v. CIT (1965) 57 ITR 185 (SC), CIT v. Podar Cements Pvt. Ltd. (1997) 226 ITR 625 (SC), it is held that once the executed documents are registered, the transfer will take place on the date of execution of documents and not on the date of registration of documents. In view of above factual matrix and position of law, the 1st ground of appeal is dismissed.
3. The 2nd ground of appeal On the facts and in the circumstances of case and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs.41,560/- out of the disallowance of Rs.83,120/- made by the AO on account of telephone expenses as per the grounds stated in the impugned order or otherwise.
3.1 The AO disallowed Rs.83,120/- (20% of telephone expenses of Rs.4,15,601/-) on the ground that the personal use is involved. In appeal, the CIT(A) reduced the disallowance to 10% of Rs.4,15,601/- We find that in the assessment order, the AO has mentioned that detailed questionnaire was issued to the assessee on 16.12.2013 and in response to it the details called for were filed. Therefore, there was no necessity of making ad-hoc disallowance without finding out any specific defect in the submission filed by the assessee. Thus we delete the disallowance restricted to 10% of Rs.4,15,601/- by the Ld. CIT(A) and allow the 2nd ground of appeal
4. The 3rd ground of appeal On the facts and in the circumstances of case and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs.48,411/- out of the disallowance of Rs.72,617/- made by the Ld. AO on account of conveyance and staff welfare expenses as per the grounds stated in the impugned order or otherwise. 4.1 The AO has disallowed 15% of conveyance expenses and staff welfare amounting to Rs.4,84,111/- which comes to Rs.72,617/- on the reason that though the ledger account and details in support of the above expenses were filed many of the expenses were incurred on the basis of self-made cash vouchers and it was not possible on his part to make complete verification.