The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the nature of capital gain as to whether short term or long term capital gain is to be determined on the basis of agreement or allotment date instead of registration date.
The assessee sold a vacant land at Madambakkam for a consideration of Rs. 86,40,000/-. This land was purchased by the appellant on 06.01.2012 from Shri. R. Radhakrishnan. The assessee had computed long term capital gains from sale of property after deducting cost of acquisition and claimed deduction under Section 54F of the Income-Tax Act, 1961.
The AO had rejected the deduction claimed under Section 54F of the Income Tax Act on the ground that, the assessee could not complete construction of house property within three years from the date of transfer of original asset. He also added short term capital gains by taking the date of registration of sale to the assessee as the date of acquisition of property.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), and contended that if he consider the date of allotment of property in the year 1984, then the period of holding is more than 36 months and subsequently, profit derived from the sale of property is assessable under the head long term capital gains.
The assessee had also contested denial of deduction under Section 54F of the Income Tax Act. The CIT(A) after considering submissions of the assessee and taking note of various facts, opined that the land sold by the assessee is a short term capital asset.
On behalf of the aggrieved assessee, FCA Y Sridhar submitted at the Tribunal that considering the “date of allotment coupled with agreement dated 05.09.2007, the period of holding asset is more than 36 months and consequently, sale of property is rightly assessable under the head long term capital gains.”
The department representative submitted that the allotment letter from M/s. Baskar & Co., submitted that documents furnished by the assessee are not convincing.
It was also contended that, as per provisions of Section 54F, in case the assessee could not invest sale consideration for acquiring new asset, balance should be deposited in capital gain deposit account scheme on or before furnishing return of income under Section 139(1) of the Income Tax Act. In this case, the assessee neither spent consideration for acquisition of new asset nor invested in capital gain deposit account scheme. Therefore, the AO rightly rejected the claim of deduction, as per the submissions of JCIT Sajit Kumar.
The Tribunal of Judicial Member Durga Rao and Accountant Member G Manjunatha observed that the assessee could not complete the construction for various reasons. It was also observed that, “the assessee has spent about Rs. 88,75,400/- towards construction of another residential house which includes purchase of land, payment for labor charges and payment to M/s. Raj Constructions for material supply.”
The AO was therefore directed to allow the deduction under Section 54F as claimed by the assessee.
In the matter of determination of nature of capital gains, the tribunal took a lenient view towards the assessee and held that, “the period of holding of asset is more than 36 months and thus, profit from sale of asset is assessable under the head long term capital gains as claimed by the assessee.”
The AO was subsequently directed to compute long term capital gains as per the assessee’s claim.
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