ITAT held that holding period should be computed from the date of issue of allotment 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
We have firstly analysed the provisions of section 2(42A) which defines ‘short term capital asset’ as under:-
“Section 2(42A) in the Income- Tax Act, 1961
(42A) “short- term capital asset” means a capital asset held by an assessee for not more than thirty- six months immediately preceding the date of its transfer”:
Perusal of aforesaid definition 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.
Full Text of the Judgment is as follows :-
This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-32 [hereinafter called CIT(A)]02-0-2015 passed against the assessment order of the AO u/s 143(3) dated 23-12-2013 for A.Y. 201-12 on the following grounds:-
“That the Learned CIT (A) has erred in confirming and upholding the Addition of Income made by the Assessing Officer on account of wrong consideration of Long Term Capital Gain as Short Term Capital Gain for Rs.4, 76,6331/- is unjustified, unwarranted and bad in law.
That the Learned CIT(A) has erred in confirming and upholding the Period of Holding of the Capital Asset as and from the date of Registration of Agreement [24-04 -2008] instead of and in place of the date of the Agreement [28-12-2007], and as such in fact and in law the Long Term Capital Asset held by the Appellant was wrongly considered as Short Term Capital Asset and the same is unjustified, unwarranted and bad in law.
That the Learned CIT (A) has erred in not considering the fact that the rights, title and interest in the property was itself acquired and held from the date of Allotment letter dated 11-04-2005 by the Appellant and as such the Period of Holding and indexation cost were not properly considered.”
2. The solitary issue required to be addressed by us in this appeal is that whether the office unit (flat) sold by the assessee during the year on which long term capital gain was shown in the return was a ‘long term capital asset’ or ‘short term capital asset’ as per section 2(42A) of the Income-tax Act, 1961. The assessee claimed that it was a ‘long term capital asset’ and therefore gain arising there-from was long term capital gain whereas AO was of the view that the said property was ‘short term capital asset’ and thus it gave rise to short term capital gain.
3. The brief background as culled out from the orders of the lower authorities is that during the year assessee sold office unit located at Unit No.107, First Floor, Everest Grande, Village Malgaon, Mahakali Caves Road, Andheri (E), According to the assessee, the asset was held for more than 36 months, therefore, it was ‘long term capital asset’ and, therefore, resultant gain was shown in the return as long term capital gain. During the course of assessment proceedings it was noted by the AO that though allotment of the said office unit was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement and accordingly it was held that the said asset was ‘short term capital asset’. The AO relied upon the judgement of Hon’ble Supreme Court in the case of M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana 304 ITR 1 (SC) wherein it was held that transfer of an immovable property is effective only from the date on which it is registered with the Sub Registrar, which is competent authority to register the documents for transfer of immovable properties. Accordingly, the AO computed the period of holding of the asset from the date of registration of the agreement with the office of Sub Registrar and found that the said property was ‘short term capital asset’. Consequently, the resultant gain was assessed as short term capital gain.
4. Being aggrieved, assessee filed appeal before Ld. CIT(A) and made detailed submissions to argue the point that the impugned property was held for more than 36 months as per law, therefore, it should be held as ‘long term capital asset’. Ld. CIT(A) did not agree with the submissions of the assessee and confirmed the action of the AO. Still being aggrieved, assessee filed appeal before the Tribunal.
5. During the course of hearing, the Ld. Counsel of the assessee made detailed Twofold arguments were made by him before us. It was firstly argued that period of holding should be computed from the date of allotment of the property as per section 2(42A). In support of his claim, reliance was placed on the following judgments:-
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 : 672, dated 16-12-1993 205 ITR(St) 47
6. It was alternatively argued by the Ld. Counsel that in case holding period is to be computed from the transfer of the property, in that case, ‘date of execution’ of the sale agreement should be taken as date of transfer of the property because the document registered on a subsequent date operates from the ‘date of execution’ and not from the ‘date of registration’ in view of clear provisions of section 47 of Registration Act, 1908. Reliance was placed in this regard on the two judgments of Hon’ble Supreme Court in the case of Principal Secretary, Government of Karnataka vs Ragini Narayan (Civil Appeal No.8895 of 2012) dated 20th September, 2016 and Gurubax Singh vs Kartar Singh 254 ITR 112 (SC). It was also submitted that if the holding period is to be computed from the date of execution of the agreement, then, the holding period shall exceed the period of 36 months and the impugned property shall be ‘long term capital asset’ in the hands of the assessee.
7. Per contra, the Ld. DR relied upon the orders of the lower authorities. It was submitted by him that it has been held by the AO relying upon the judgment of Hon’ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd (supra) that holding period should be computed from the date of transfer of the property. He requested for upholding the order of the CIT(A).
8. We have gone through the facts and circumstances of the case, orders passed by the lower authorities, submissions made and judgements relied upon before us by both the sides. The chronology of relevant events in this regard is as under:-
