ACIT Vs Sanjay Kumath (ITAT Indore)
In the case of ACIT Vs. Sanjay Kumath, heard at the Income Tax Appellate Tribunal (ITAT) Indore, the central issue revolved around the eligibility of Section 54F deduction. The dispute centered on determining the period of holding for a flat, considering the date of the allotment letter as the starting point for the deduction. The case concerned the assessment year 2009-10.
Detailed Analysis:
The case involved an appeal by the Revenue and a cross-objection by the assessee against the order passed by the CIT(A) on February 18, 2013. The primary point of contention was the categorization of the capital asset (a flat) sold by the assessee as a long-term capital asset, which would enable the assessee to claim a deduction under Section 54F of the Income Tax Act.
The facts in brief were as follows: The assessee received an allotment letter on January 22, 2005, for Flat No. 1202 at Raheja, Tipco-I, Malad, Mumbai. This letter of allotment stated that the builder, M/s. K. Raheja Universal Pvt. Ltd., Mumbai, agreed to sell the flat to the assessee for a specified amount. The assessee signed the allotment letter as an agreement with the builder and made an initial payment. Subsequently, additional payments were made, and the flat was sold on March 5, 2009, with a claim for deduction under Section 54F for the long-term capital gain arising from the sale.
However, the Assessing Officer did not accept the assessee’s contention. They argued that the right to purchase the flat was acquired only through an agreement executed on February 27, 2009, rather than from the date of the allotment letter. Therefore, the Assessing Officer considered the flat’s acquisition date as February 27, 2009, making it a short-term capital asset.
The Assessing Officer’s decision was based on the view that no capital asset existed at the time of allotment, and hence, no transfer occurred at that point. Consequently, the sale of the flat in 2009 was treated as a short-term capital asset.
Conclusion:
In response to the Assessing Officer’s decision, the CIT(A) allowed the assessee’s claim for deduction under Section 54/54-F by considering the date of allotment as the date of acquisition for treating the flat as a long-term capital asset. The CIT(A) made this decision after considering various arguments and case laws presented by the appellant.
The Income Tax Appellate Tribunal (ITAT) Indore upheld the decision of the CIT(A). It emphasized that the allotment letter extinguished the builder’s rights in favor of the assessee concerning the flat. By signing the allotment letter and making payments, the assessee acquired all rights in the flat. The ITAT referred to relevant CBDT circulars supporting the view that the allottee gets title to the property upon the issuance of the allotment letter.
Ultimately, the ITAT determined that the period of holding should be computed from the date of the allotment, which was January 22, 2005, to the date of sale on March 5, 2009. This holding period exceeded 36 months, qualifying the flat as a long-term capital asset. Consequently, the ITAT dismissed the Revenue’s appeal and the cross-objection filed by the assessee regarding the appeal’s delay was also rejected.
In summary, the ACIT Vs. Sanjay Kumath case clarified the eligibility criteria for Section 54F deduction, emphasizing that the date of the allotment letter can be considered the date of acquisition for the purpose of determining the period of holding a flat. This ruling has important implications for taxpayers seeking to claim deductions under this section of the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT INDORE
This is an appeal filed by the Revenue and cross objection by the assessee against the order passed by the CIT(A), dated 18.02.2013 for the assessment year 2009-10.
2. The Revenue has taken five grounds, however, the controversy revolves around the CIT(A)’s action for treating the capital assets (Flat) sold by the assessee as long term capital asset, thereby allowing assessee’s claim for deduction u/s 54F.
3. Rival contentions have been heard and records perused. Facts in brief are that the assessee vide allotment letter dated 22nd January, 2005, allotted a Flat No.1202 at Raheja, Tipco-I, Malad, Mumbai. As per this letter of allotment, the Builder M/s. K.Raheja Universal Pvt.Ltd., Mumbai, agreed to sell the flat to the assessee for Rs. 33,15,750/- besides other charges of Rs. 1,32,480/-. The assessee was required to sign the letter as a token of agreement with the Builder. The assessee duly signed the letter and allotment was given to assessee on 22.1.2005. Payment of Rs. 1 lakh was made by the assessee on 22.1.2005, Rs. 5,23,150/- on 26.1.2005 and the balance payment was made gradually. The assessee sold the said flat on 5.3.2009 as per agreement of sale dated 27.2.2009 and claimed deduction u/s 54F. In respect of long term capital gain so arose. However, the Assessing Officer did not accept the assessee’s contention by observing that assessee has acquired the right in the said flat by way of agreement executed on 27.2.2009. Thus, the date of acquisition of the sad flat was taken by the Assessing Officer as on 27.2.2009 in place of date of allotment of flat vide allotment letter dated 22.1.2005. Precise observation of the Assessing Officer was as under :-
“The relevant portion of the A.O.’s findings is extracted as under:-
4. SHORT TERM CAPITAL GAIN VS. LONG TERM CAPITAL GAIN
a. Long Term capital Gain: On examination and verification of returns and submissions filed by the assessee, it is noticed that the assessee has shown Long Term Capital Gain Rs.29,37,549/- on transfer of its “ right to purchases” a flat for Rs. 69,00,000/-n against which indexed cost of acquisition Rs. 1,21,250/- and cost of improvement Rs.38,41,201/-(total Rs. 39,62,451/-) has been claimed. The Long Term Capital Gain Income has been subsequently claimed exempted u/s 54F on account of investment of net consideration in Capital Gain-CDR A/c with OBC. RNT Marg, Indore.
b. Short Term Capital Gain: On further examination of the copies of “Agreement for Transfer” and “Agreement for Sale” in respect of the purchase and sale of the assessee’s so called rights in a Flat No.1202, 12th Floor, Tower-I, Raheja-Tipco Heights, Malad (E), Mumbai, it is noticed that the period of holding of said rights is less than the prescribed period of three years and therefore Short Term Capital Gain income has accrued to the assessee.
c. Agreement for Sale conferred “the right to purchase” the aforesaid flat on the assessee on 27.02.2009 the date on which the agreement was executed & registered during the PY. relevant to Assessment year 2009-10 between the following parties:
M/s. Raheja Universal Private Limited, Mumbai (The Developer) and
1. Nirmal Bapulal Thakkar (HUF) (The First Owner)
2. Surat Bapulal Thakkar (HUF) (The Second Owner)
3. Dayal Bapulal Thakkar (HUF) (The Third Owner)
And Shri Sanjay Kumath (The Assessee & Purchaser)
d. Agreement for Transfer transferring the said “right to purchase” a flat is found to have been made on 05.03.2009 during the P.Y. itself between:
And
M/s. Raheja Universal Private Limited, Mumbai (The
Confirming Party No.1)
And
4. Nirmal Bapulal Thakkar (HUF) (The First Owner
5. Surat Bapulal Thakkar (HUF) (The Second Owner)
6. Dayal Bapulal Thakkar (HUF) (The Third Owner)
And
Shri Jayesh Veljibhai Gadhecha and Mrs. Divya Jayesh Gadhecha (Transferees)
Since the assessee has been bestowed with “the right to purchase” the aforesaid flat on 27.02.2009 and the said right has been sold by him on 05.03.2009 during P.Y. itself, it was required of the assessee to explain as to why the rights to sale the flat under consideration should not be considered to be vested with him from the date of agreement of purchase of right i.e. 27.02.2009.
e. Letter of Allotment dated 22.01.2005: In response, the assessee through its Counsel Shri Manish Mittal furnished a copy of allotment letter of said flat stating that “the assessee acquired interest in the said flat by way of right to purchase the said flat at the price agreed therein”. It has further been plead that” the assessee had been allotted flat under consideration on 22.01.2005, conferring on him right to purchase the said flat…………………… The fact that an agreement for sale of flat was entered on 27.02.2009 does not affect the rights conferred on the assessee vide allotment letter dated 27.02.2009. Subsequently, a copy of certificate from the above named developer has also been furnished in support of claim of the assessee as to the acquisition of irrecoverable right from the date of allotment letter.
f. Existence of Capital Assets: The assessee’s plea as to the acquisition of rights from the date of allotment letter is not correct as there existed no capital assets as on the date of allotment letter in which the assessee could be said to have acquired so called right to purchase the said flat. The allotment of said flat was made only on the basis of Building Plan & layout for construction of the Projects Property.
g. Transfer:- Since there existed no capital assets, there arises no question of transfer within the meaning of section 2(47) of the Act as on the date of allotment.
In the case in hand there was no capital asset in existence at the time of booking and no right or asset was transferred by the tentative allotment letter, then the subsequent sale of the rights in flat which were acquired by the assessee only by the Agreement for Sale on 27.02.2009 and sold vide Agreement for Transfer on 05.03.2009 cannot be said to be a long-term capital asset.
h. If it could be presumed at all that there existed capital asset in the shape of so called rights and its transfer took place on the date of allotment letter, the assessee can be said to have acquired the rights in the said flat for the amount of booking amount only.
i. Para-21 of Agreement for Sale states here as under:
“21. IT IS HEREBY EXPRESSELY AGREED AND PROVIDED that so long as it does not in any way effect or prejudice the rights hereunder granted in favour of the Purchaser in respect of the said float, the Developer………..”
The expressing “the rights hereunder granted in favour of the Purchaser in respect of the said flat” evidently indicate the fact that the assessee is being bestowed with the rights to purchase the said flat only through the said agreement for sale. It may, therefore, very well be said that rights has been conferred on assessee from the date of execution of agreement for sale on 27.02.2009 and not from the date of allotment letter.
j. Para- (I) of the Agreement for Transfer dated 05.03.2009 also confirm the aforesaid fact which read as under:
(I) Pursuance to the negotiation between the parties hereto, the Transferor (The Assessee) have agreed to sell and transfer to the Transferee (Shri Jayesh Veljibhai Gadhecha and Mrs. Divya Jayesh Gadhecha) and the Transferees have agreed to acquire from the Transferor (The Assessee) the Transferor’s right, title and interest in the said original Agreement for sale dated 27.02.2009 for a lump sum…… ”
Evidently the Transferor (The Assessee) has been vested with the right, title and interest in the aforesaid flat from the date of original agreement (Agreement for Sale) dated 27.02.2009.
k. Again, the “Developer” i.e. M/s. Raheja Universal Private Limited, Mumbai had acquired only the rights to develop from the land owners in 2003 and he had not fully paid off his agreed obligation as on the date of allotment to the land owner. Therefore, the transaction of transfer of rights between developer and land owners had not completed as on date of allotment. Hence, transfer of the right to the assessee by the right holder developer cannot be said to be clear and free from encumbrance as on the date of allotment letter relied upon by the assessee and uphill the completion of Project Property.
In view of the discussion made in the foregoing pares, the assessee cannot be said to have acquired the right to purchase a flat from the date of allotment letter as claimed by him. The assessee has also relied upon the certificate dated 01.08.2011 issued by the developer. The developer is not, however, an authority to decide as to when the irrecoverable right had accrued to the assessee.”
4. By the impugned order, the ld. CIT(A) allowed assessee’s claim for deduction u/s 54/54-F by treating the date of allotment as a date of acquisition for treating the flat as long term capital assets in the hands of the assessee, after having the following observations :-
“4.3 I have considered the A.O.’s order as well as the appellant’s submission. Further I have also taken note of the case laws relied upon by the appellant. Having considered all the facts of the case, I find merits in the arguments of the appellant. I agree with the appellant’s A/R that the appellant acquired ‘Right to purchase’ of the said flat on part payment of purchase consideration i.e. on 22/01/2005. Accordingly the appellant’s gain will be considered as long term capital gain. Even find that the case laws relied upon by the appellant also support the said contention of the appellant. Further I find that the said view is also supported by CBDT circular No. 471 dated 15/10/1986 & CBDT circular No. 672 dated 16/12/1993. It is clearly held by the Board that “the Allottee 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 the delivery of possession is only a formality. Even it is also evident that the board vides circular No. 672 after referring circular No. 471 extended the facility of exemption under section 54 & 54f in respect of allotment of flat/house. Thus, taking note of all these facts of the case, I consider it proper and appropriate to hold that the A.O. was not justified in rejecting he claim of the appellant in respect of ‘Right to purchase’ i.e. date of allotment. Further I find that the appellant is also entitled to deduction u/s 54F as the entire sale consideration value of the said flat/house was invested in capital gain-CDR A/c with OBC. RNT Marg, Indore. Accordingly this ground of appeal is allowed.”
5. Department is in appeal against the said order of CIT(A).
6. Shri R. A. Verma, Sr. DR, on behalf of the Revenue contended that as on the date of allotment i.e. 22.01.2005, no capital asset was existed, therefore, the ld. CIT(A) was not justified in taking the date of acquisition as on 22.1.2005. As per contention of ld. Sr. DR, the flat was acquired by the assessee only by way of agreement of purchase executed on 27.2.2009, which was sold by the assessee on 05.03.2009. Period of holding of flat by assessee was just for few days. Thus, the Assessing Officer was justified in treating the flat so sold as short term capital assets. He relied on the decisions reported at 57 ITR 185 ( S. C. ), 218 ITR 1 ( Kerala , 234 ITR 850 (Mumbai) and also decision of I.T.A.T. Mumbai Bench reported at 102 ITD 437. In view of these decisions, contention of Ld. Sr. DR was that agreement for sale executed on 27.2.2009 conferred “ Right to purchase” on the assessee and no right was acquired vide allotment letter dated 22.02.2005. Accordingly, it was pleaded that flat so sold was held by the assessee for less than 36 months, therefore, the Assessing Officer was justified in treating the gain arose of sale of flat as short term capital gain.
7. On the other hand, Shri H.P.Verma and Ms. Sakshi Verma, appearing on behalf of the assessee contended that letter of allotment dated 22.01.2005 bestowed the right of flat on the assessee and after signing the said allotment letter, the assessee agreed for allotment and in consideration of which he has made payment of Rs. 1 lakh on the very same date and subsequent payment of Rs. 5,23,150/- was made on 26.1.2005 and so on. As per ld. Authorized Representative, the word “property “ does not mean merely physical property but also means the right, the title or interest in it.
8. We have considered the rival submissions and have gone through the orders of the authorities below and also deliberated on the judicial pronouncement cited by the ld. Senior DR with reference to the factual matrix of the case. Here, the question involves regarding right acquired by the assessee through allotment letter issued by the builder. Vide this allotment letter, the assessee was allotted Flat No.1202 at 12th Floor of Multi-storied building named as Raheja Tipco, Mumbai. Vide this allotment letter, builder M/s. K.Raheja Universal Pvt.Ltd, agreed to sell the flat to the assessee for Rs. 33,15,750/- besides other charges of Rs. 1,32,480/-. After signing the said letter of allotment and paying the booking amount, the assessee acquired the right in the said flat. Payment of flat was made as under :-
Date | Payment (Rs.) |
22.01.2005 | 1,00,000/- |
26.01.2005 | 5,23,150/- |
09.07.2005 | 3,11,575/- |
28.04.2006 | 1,40,209/- |
03.01.2007 | 11,21,672/- |
23.03.2007 | 1,40,209/- |
24.05.2007 | 1,40,209/- |
21.09.2007 | 1,40,209/- |
06.11.2007 | 1,40,209/- |
31.03.2008 | 2,80,418/- |
9. After the entire payment was made by the assessee, agreement was executed on 27.2.2009, thereafter,the assessee sold the flat on 5.3.2009. Thus, all the rights in the flat was duly acquired by the assessee on 22.1.2005, when he was given letter of allotment which clearly described the precise number of flat so allotted to him. As per the provisions of Section 2(47)(ii) “Transfer” in relation to capital assets includes the extinguishment of any right therein. This letter of allotment extinguishes the rights of builder in the said flat in favour of the assessee in respect of this flat and by signing the letter of allotment, the assessee agreed to buy the same and for which payment was also made according to the latter of allotment. Decisions cited by ld. Senior DR are distinguishable on facts. We found that CBDT vide Circular No. 4781 dated 15.10.1986 and Circular No.672 dated 16.12.1993 held as under :-
“The allottee gets title to the property on the issue of the allotment letter and the payment of instalment is only a follow up action and taking the delivery of possession is only a formality.”
10. Board vide circular no. 672 after referring Circular No. 471 extended the facility of exemption u/s 54 & 54F in respect of allotment of flat/house. Thus, as per the CBDT Circular also, the assessee acquired the rights/title in the flat by way of allotment letter on 22.1.2005. This allotment letter was duly confirmed by the assessee by making various payment as narrated above. Out of total payment of Rs. 33.15 lakhs, the assessee made payment of Rs. 6.23 lakhs in the month of allotment itself i.e. January, 2005. Subsequent payment was also made as per the terms agreed with the builder. Only after receipt of entire amount, the builder has executed agreement with the assessee on 27.2.2009. The assessee has sold the said flat on 05.03.2009. Since the assessee has acquired all the rights in the flat on 22.01.2005, the period of holding is to be computed with respect to the date of allotment i.e. 22.01.2005. Taking the date of sale as 05.03.2009, the holding period of flat with the assessee was more than 36 months, therefore, there is no infirmity in the order of CIT(A) for allowing assessee’s claim for exemption u/s 54/54F, by treating the capital assets so sold as long term capital assets.
11. In the result, the appeal of the Revenue is dismissed.
12. In the cross objection, the assessee is aggrieved for delay in filing the appeal by the Revenue. As per ld. Authorized Representative , the Assessing Officer has given effect to the order of CIT(A) on 26.2.2013, therefore, the appeal filed by the Department on 13.06.2013, was barred by limitation.
13. On the other hand, the ld. Senior DR strongly objected to the contention of the assessee regarding delay in filing the appeal and contended that the appeal was filed in due time, in so far as order of CIT(A) was received in the office of CIT Admin. on 17.4.2013, which was duly mentioned in the order passed u/s 253(2) DATED 11.6.2013.
14. We have considered the rival submissions and found that this appeal was filed on 13.06.2013 in respect of order received by the Office of CIT Admin. on 17.4.2013. Thus, there was no delay in filing the appeal by the Department. Accordingly, we do not find any merit in the cross objection filed by the assessee.
15. In the result both the appeal of the Revenue as well as cross objection filed by the assessee are dismissed.
This order has been pronounced in the open court on 19th December, 2013.