Shreya Garg (15 Points)
08 January 2018
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(196198 Points)
Replied 09 January 2018
From the date of registration of agreement/deed or possession letter, whichever earlier.
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(196198 Points)
Replied 09 January 2018
Transfer defined
Under Section 2(47), ‘transfer’ includes not merely sale, exchange, relinquishment, etc. It also covers any transaction involving the allowing of the possession of any immovable property to be taken or retained in part-performance of a contract of the nature referred to in Section 53A of the ToP Act.
The term ‘capital asset’ in Section 2(14) refers to property of any kind ‘held’ by an assessee. There is no reference to ‘owner’ or ‘owned’. Section 53A of the ToP Act allows the doctrine of part-performance to be applied to the agreement which, though required to be registered, is not registered.
Section 53A applies to transfers not completed in the manner prescribed by the Registration Act. Where the transferor handed over the possession of the property pursuant an agreement for sale, the person receiving possession is entitled to receive the income from the property.
Section 27 of the Income-Tax Act, 1961 was amended by the Finance Bill, 1987 so as to incorporate the new law about possession entitling the transferee to be deemed to be the owner of property for purposes of Section 22 in relation to income from property. This amendment is common to Section 2(47) also.
In the context of considering the assessability of income from property in the hands of the person who was in possession, the apex court held that the amendment introduced by Finance Bill, 1987 was declaratory or clarificatory in nature and was retrospective in operation. That was in the well-known Podar Cement (P) Ltd (226 ITR 625) case.
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(196198 Points)
Replied 09 January 2018
The Madras High Court has clarified the law on the subject in the Madathil Brothers vs DCIT (301 ITR 345) case.
The case considered by the High Court related to the nature of the capital gains, that is, whether long term or short term. The party was in possession of property under agreement of sale entered in 1976. Sale deed was executed in July 1986 and was registered in September 1986.
The High Court held that the property was held from 1976 onwards and gains on sale were assessable as long-term capital gains.
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(196198 Points)
Replied 09 January 2018
The Mumbai Tribunal has recently ruled that holding period should be computed from the date of issue of allotment letter by the developer. If the investor sells the property 36 months after receiving the allotment letter, it will be considered as a long term capital asset. The seller would then need to pay LTCG tax on it, which would reduce his tax outgo. This judgement follows the decision of high courts in the case of Commissioner of Income Tax (CIT) vs K Ramakrishnan and CIT vs SR Jeyashankar.
A real case can help to understand this better. A property owner sold an office space in Mumbai. The property was allotted to the seller in April 2005. He had signed the sale agreement in December 2007 and registered the property in April 2008. He sold the property in March 2011.
According to the seller, the property was held for more than 36 months based on the date of allotment. He, therefore, needs to pay LTCG tax. But the tax department disputed this. The assessing officer said that the holding period should be from the date of registration. According to the officer, the holding period was less than 36 months, and the seller needs to pay STCG.
Aggrieved by the order of the department, the seller first filed an appeal with the CIT and after an unfavourable order moved the Income Tax Appellate Tribunal. The seller argued that the holding period should be computed from the date of allotment of the property under Section 2(42A) of the I-T Act. He produced various judgments that had followed the same principle to support his case.
He also argued that even if the tax authorities don’t consider the allotment date, they should consider the date on which the sale agreement was signed.
He contended that this was in line with Section 47 of The Registration Act, 1908, and supported by the Supreme Court’s previous judgement. Accordingly, considering the date of execution of sale agreement, the holding period would exceed 36 months, and hence, the resultant gain should be considered as LTCG.
The I-T department, on the other hand, said that the Supreme Court has held that transfer of property will be effective only on registration of conveyance deed with the Sub Registrar, which is the competent authority to register documents for transfer of immovable property. This is in line with Section 54 of the Transfer of Property Act. The department also argued that the absolute legal ownership of the property should be determined taking a view on the Transfer of Property Act along with Section 2(47) of the I-T Act for computing tax on the sale of an immovable property.
The tribunal said that Section 2(42A) of the I-Tax Act defines short term capital asset as an asset held by an individual for not more than 36 months immediately preceding the date of its transfer. The intention of the law in using the word “held” against words such as “acquired” or “purchased” or “owned” indicates that the absolute legal ownership of the asset is not a principle factor in the determination of holding period. The time from when the individual starts holding the asset is the real determining factor.
The tribunal referred to various high court judgments which concluded that it is not necessary that the individual should be the owner of the asset with a registered deed of conveyance conferring the title on him. Also, the assessee has a right to the property since the date of issuance of allotment letter. Hence, execution of sale deed at a subsequent date is irrelevant, and the transfer of ownership of a property in the hands of an owner is not the criterion for determining holding period of the property.
Like other high court judgments, recently Mumbai ITAT also gave an order — Anita Kanjani, Mumbai, vs ACIT 23(1) dated February 13, 2017 — in favour of the taxpayer. It helps the assessee to support the position that for determining the period of holding, date of allotment should be considered.
Even CBDT had issued a circular in the past, where it clarified that the period of holding of the property booked by an assessee under self-finance scheme of Delhi Development Authority will be counted from the date of issuance of allotment letter.
While there are enough judgments that say that holding period starts from the date of issuance of allotment letter, litigation from the tax authorities cannot be ruled out because of a few conflicting orders !!!
Courtesy: .business-standard.com/article/pf/taxation-use-date-of-allotment-to-calculate-capital-gains-117051300912_1
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