1. The assessee reported sales of two capital assets in the form of half shares in a residential property in Marine Drive, Mumbai and half share in a Kashmere Gate, property. The assessee claimed that a sum of Rs. 73,27,000/- was used to acquire another property within a period stipulated in Section 54. It also claimed, inter alia, that a sum of Rs 25,14,700/- was spent towards cost of improvement.
2. The Assessing Officer rejected the assessee’s contention and held that in the absence of an agreement to sell, the rights acquired by the provisional booking of the property did not meet with the requirements spelt out under Section 54, i.e. acquisition of new capital asset. The AO also held that the improved cost was not deductible.
Question / Issue
Whether the amounts spent by the assessee were towards acquisition of a capital asset, during the relevant year, and that the amount spent towards improvements was deductible particularly in view that only provisional letter of allotment has been issued to the assessee and there is no agreement to sell.
The AO’s position with respect to acquisition of a new capital asset was correct. And ITAT’s reliance on CIT vs. R.L. Sood (2000) 245 ITR 727 and the ruling in Suraj Lamps and Industries Pvt. Ltd. vs. State of Haryana and Anr. 340 ITR 1, has arisen the issue of acquisition of capital assets as follow:
“7. . We have heard rival contentions and perused the material available on record. Reliance placed on the case law by ld. DR does not support the cause of the revenue. Hon’ble Delhi High Court judgment in the case of R.L. Sood (supra), wherein the investment in flat irrespective of the delivery of possession by builder has been held to be investment in purchase or construction of new flat is applicable to assessee’s case. In view of CBDT Circulars (supra), clarifying the proposition, also ground no. 1 taken by the revenue is dismissed.”
It is urged that the ITAT fell into error since the cost of improvement was incorrectly allowed.
High Court held that
This Court, in the decision reported as Sh. Gulshan Malik vs. Commissioner of Income Tax (ITA No.55/2014, decided on 14.03.2014) had the occasion to, inter alia, consider what amounted to acquisition of a capital asset – though in the context of a claim that capital gains had accrued due to the sale of the property. The facts in that case were that the assessee had booked a flat, and was recipient of a provisional allotment letter. The Court held importantly that even booking rights or rights to purchase the apartment or to obtain its letter was also capital asset and has categorised the same as under :
“7. It is clear that a “capital asset” under the Act is property of “any kind” that is “held” by the assessee. Necessarily, a capital asset must be transferable. Thus, to understand what kind of property can be considered a capital asset, it would be apposite to refer to the definition of transfer in Section 2(47) of the Act. Section 2(47)(v) and (vi), and Explanation 2 make it adequately clear that possession, enjoyment of immovable property, as well as an interest in any asset are all transferable “capital assets”. The reference to acquisition “by way of any agreement or any arrangement or in any other manner whatsoever” establishes that it is not conveyance of property or the doctrine of part performance (enacted through Section 53A of the Transfer of Property Act) which result in enforceable rights, for the purposes of the Income Tax. The scheme of the Act puts it beyond doubt that even rights or interests in a property are kinds of property that are transferable capital assets. Thus, there is no doubt that booking rights or rights to purchase the apartment or rights to obtain title to the apartment are also capital assets that can be transferable.”
In the light of the definitions of “capital asset” under Section 2(14) and “transfer” under Section 2(47) as discussed in Gulshan (supra), this Court has no doubt that the assessee’s contentions were merited.
So far as the second issue is concerned, i.e. whether improved cost was deducted, this Court has no manner of doubt that the Revenue does not dispute the acquisition of second property at Model Town. Given that the Revenue does not dispute that the second transaction of purchase took place, it has to necessarily follow that the cost of improvement was deductible. No substantial question of law arises on that score too.
Hence, revenue appeal is dismissed.
Analysed by CA Rahul Sureka