Rajesh Shamji Furia Vs ITO (ITAT Mumbai)
Redeveloped Flat Is a Continuation of Original Asset: Sale Qualifies as Long-Term Capital Gain Eligible for Indexation and Section 54/54F Relief
The Mumbai ITAT held that a flat received under a redevelopment scheme is not a fresh capital asset but a continuation and substitution of the original property rights. The execution of a Permanent Alternate Accommodation Agreement merely identifies the redeveloped premises to which the owner was already entitled under the earlier redevelopment arrangement and does not mark the date of acquisition of a new asset. Accordingly, the Assessing Officer was not justified in treating the redeveloped flat as having been acquired only on the date of the Permanent Alternate Accommodation Agreement and, therefore, wrongly assessed the gain arising on its sale within a few days as Short-Term Capital Gain.
Relying on the Bombay High Court decision in PCIT v. Vembu Vaidyanathan and its earlier decision in Mrs. Urmila Jagdish Mehta, the Tribunal reiterated that the period of holding in redevelopment cases commences from the date on which enforceable rights in the property crystallise, and not from the date of execution of the conveyance or alternate accommodation agreement. Even assuming the holding period commenced from the Development Agreement, the asset had been held for nearly five years before its sale and, therefore, qualified as a long-term capital asset. The Tribunal also held that the additional area received under the redevelopment scheme, the additional area purchased from the developer, and the area received from the assessee’s mother all flowed from the pre-existing redevelopment rights and could not be artificially split into separate capital assets. Consequently, the assessee was held entitled to Long-Term Capital Gains treatment, indexation benefit, and exemption under section 54/54F, and the addition of ₹80.14 lakh made by treating the gain as Short-Term Capital Gain was deleted.
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