The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Ramesh A. Radhakrishnan v. ACIT held that the date of obtaining absolute legal ownership of the asset is not relevant for granting deduction under section 54/ 54f of the Income Tax Act.
The Assessing Officer (AO) noted that a flat was immediately sold after possession and the assessee was himself staying in a rented accommodation and therefore the sold flat was not being used for residential purposes and therefore, not entitled for exemption u/s 54. Further, since the holding period, as counted from the date of possession, was less than 3 years, the resultant gains were treated as Short Term Capital Gains and accordingly, indexation of cost of acquisition as well as deduction u/s 54 was denied to the assessee, which resulted into impugned additions.
The issue before the present Tribunal was with respect to treatment of the residential property and the gain on its sale and whether the assessee would be entitled to benefit of deduction u/s 54 against capital gains from sale of residential property.
The Departmental Representative reiterated the grounds upon which the AO rendered its decision in form of its contentions. It was his contention that the period of holding of the property shall be counted from date of possession, on the other hand, the contention of the assessee was that holding period should be counted from date of agreement.
Towards the first contention based on the length of holding period, the Tribunal held that Right of Possession to the property essentially sprang from the premises ownership agreement and was in furtherance of the same agreement only. Referring to Section 54, the Tribunal held that the intention of the legislature was clear that for the purpose of determining the nature of capital gain, the provision did not refer to absolute legal ownership.
The Tribunal bench comprising of constituting of Judicial Member Saktijit Dey and Accountant Member Manoj Kumar Aggarwal observed that, “The expression used is ‘held’ as against ‘acquired’ or ‘purchased’ as used in other Sections like section 54 / 54F which shows that legislatures were conscious while making use of this expression. The expressions like ‘owned’ / ‘acquired’ 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 was clear that for the purpose of determining the nature of capital gain, the period during which the asset was held by the assessee for all practical purposes on de-facto basis was to be considered and not the date of obtaining absolute legal ownership of the asset for determining the holding period. The term “held” has been interpreted by the Courts wherein unanimous view has been that the said term ‘held’ is different from the term ‘acquire’. The Hon’ble Punjab and Haryana High Court, in the case of CIT Vs. Ved Prakash & Sons (HUF) 207 ITR 148, stated that the term ‘held’ is deliberately used as against term ‘owned’. Hence, a person can hold the asset as owner, lessee, tenant, etc. Therefore, the right to the property is held by a person from the date when he enters into an agreement for purchase and not when he acquires possession”.
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