The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that long term capital loss to be computed from the Date of possession of Property and not after the occupancy certificate.
The assessee, G. Dasaratharami Reddy along with another person named Shri Diwakar Asthana had entered into an agreement for purchasing a property for a consideration of Rs.1.65 crores. The stamp duty payable on purchase was paid on the date of entering of “Agreement to sell” itself. The property was sold by both the persons (assessee and other purchaser) for a sum of Rs.1.50 crores. The assessee’s share was 50% and accordingly, he computed long term capital loss pertaining to his share.
The AO held that the property is a shorter term capital asset and accordingly held that loss arising on sale of property is a short term capital loss. The CIT(A) also confirmed the same.
The assessee submitted that the purchasers had retained a part amount on the date of entering of “Agreement to sell”, since the seller had not obtained occupancy certificate at that point of time. Hence, it was agreed that the possession shall be taken after obtaining occupancy certificate and accordingly the balance amount shall be released.
It was also agreed that the occupancy certificate shall be obtained and possession shall be taken by 31.3.2008 subject to an extension of 60 days there from. The assessee had taken possession of the property by March 2008 itself thereafter.
The assessee urged that the A.O. was not correct in presuming that the possession was taken by the assessee. The assessee had paid a stamp duty on purchase of property on the date of entering of sale agreement itself and this fact has been mentioned in the sale deed. Further, the clause 4 of the sale deed clearly states that the vacant and peaceful possession of the Bungalow had already been handed over to the assessee earlier to the date of sale deed, meaning thereby the possession was obtained by the assessee much earlier to the date of sale deed. Accordingly, the tax authorities are not justified in taking the view that the possession was obtained only on the date of sale deed.
On the other hand the department contended that the assessee is required to pay Rs.16.50 lakhs only after obtaining occupancy certificate and possession of the Bunglow. The assessee has paid the above said amount of Rs.16.50 lakhs only at the time of entering of sale deed, which fact is emanating from clause 3 of the sale deed. Since the assessee had paid the above said amount only on the date of entering of sale deed, the assessee could not have been given possession earlier. Accordingly, the tax authorities are justified in taking the view that the possession of the property was obtained only on 13.8.2008, in which case, the property shall constitute a short term capital asset.
The coram of Accountant Member, B.R. Baskaran noticed that the assessee has paid stamp duty amount on the date of entering of “agreement to sale” itself in 2007. Further the assessee has paid almost 90% of the purchase consideration on the date of entering “Agreement to sell” itself. Hence there is merit in the submission of assessee that the balance amount of Rs.16.50 lakhs was withheld only to ensure that the sellers obtained occupancy certificate.
“It is quite possible that the assessee should have obtained possession prior to 14.7.2008, in which case the property should be held to be long term capital asset, since the property has been sold on 15.7.2011. Accordingly, I hold that the property is a long term capital asset in the hands of the assessee and hence the loss arising on sale of property shall be computed as long term capital loss,” the ITAT said.
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