Case Law Details
The difference between the ‘short-term capital’ asset and ‘long-term capital asset’ is the period over which the property has been held by the assessee and not the nature of tittle over the property. The lessee of the property has rights as owner of the property subject to covenants of the lease, for all purposes. He may, subject to covenants of the lease deed, transfer the lease hold rights of the property with the consent of the lessor. The conversion of the rights of the lessee in the property from having lease hold right into free hold is only by way of improvement of her rights over the property, which she enjoyed. It would not have any effect on the taxability of gain from such property, which is related to the period over which the property is held. If the period is less than 36 months, the gain arising from such transfer would be of short-term capital gain.
In the present case, the property was held by the assessee as a lessee since 1984, and the same was transferred on 31.03.2004, after the lease hold rights were converted into free hold rights on the same property which was in her possession, in her favour on 29.03.2004. The conversion was by way of improvement of title, which would not have any effect on the taxability of profits as short term capital gain.
HIGH COURT OF JUDICATURE AT ALLAHABAD
Case :- INCOME TAX APPEAL No. 56 of 2013
The Commissioner Of Income Tax
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The concurrent decisions/ judgments of CIT(A), Tribunal and High Court on the issue of period of holding of capital asset deserves to be accepted by revenue.There are many situations in which conversion from one form to another form of assets is not considered as transfer but regarded as continued holding. In some situations period of holdign of origianl asset or period of holdign by origina holder is considered as period of holding of new assets or the assessee as the case may be. The period of holdign is also reckoned from the date of original acquisition. What is more important is the date of acquisition and cost of acquistion and improvement and dates of incurring such costs.Difernet cost inflation index is applied according to the yeear of incurring cost of acquisition and cost of improvement. Thus nature of long-term capital asset or holdign period is not affected due to incurring cot of improvement. This is clearly intended as per various provisions. The CBDT will do well to make rules to clarify more situations in which period of holding of original asset or period of holding of previous owner is included in period of holdign . The situations as specified in Explanation 1 in section 2(42A) are illustrative. AS per clause (ii) to section 2(42A) the Board may by Rules prescribe for determination of period of holdign of assets. This shows that the items covered in Explanationa re illustrative.As per my information The Board has not yet made Rules in this regard. Rules may be framed to include all period from the date of acquisition and making of investment in the capitla asset by the assesse or by previous owner (when his period of holding is included).