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April 16, 2021

Assessee get title of property on the basis of allotment letter: ITAT Banglore

Assessee get title of property on the basis of allotment letter: ITAT Banglore

Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price.

The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. To save tax on these capital gains, a few capital gains exemption/deductions are available under sections 54, 54B, 54D, 54F etc. As per the provisions of these sections, the amount is required to be reinvested in specified investment types before the specified period. However, if the due date of filing income tax returns falls before the expiry of the specified period, the amount of capital gains is required to be invested temporarily in the Capital Gains Account Scheme which can be easily withdrawn at the time of investment in the specified instrument.

What is section 54 of the Income tax act?

Section 54 states that where assessee being individual or HUF has sold a long term capital asset consisting of residential house property then he shall be eligible for exemption of capital gain under this provision.

The assessee is required to purchase one residential house property in India in order to avail exemption under section 54. Where the Long term capital gain arising out of transfer is up to Rs. 2 crore then assessee can acquire two residential house properties prescribed time limit. This benefit of two house property is available to the assessee only once in lifetime.

The assessee has to purchase the new property within 1 year before or 2 years after the date of transfer of the old asset. In case the assessee conducts construction of the property then such construction must be completed within 3 years from the date of transfer of asset.

If the assessee is not able to purchase the property before the due date of filing of return than he can deposit the amount of capital gain in Capital gain account scheme in order to avail the exemption.

The assessee will get a maximum exemption of the amount of long term capital gain or the cost of new asset whichever is lower.

The assessee has to hold the asset for 3 years. In case the assessee transfer the new asset within 3 years from the date of purchase or construction, then cost of acquisition of new asset reduced by exempted capital gain.

Where the amount deposited in Capital gain account scheme is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains.

Fact of the case

The assessee is an individual, who is deriving income from salary. For the assessment year 2010-2011, the return of income was filed on 02.08.2011, declaring total income of Rs.7,48,390. The assessment u/s 143(3) was completed on 28.03.2013 by making addition to the salary income declared by the assessee. Subsequently, the assessment was reopened by issuance of notice u/s 148 of the I.T.Act for the reason that the assessee had sold a flat in Mumbai (Flat No.304, Buttercup, Hiranandani Meadows, situated at Thane (West Mumbai) on 26.09.2009 for a consideration of Rs.62,91,500 and this flat, according to the Assessing Officer, flat was purchased by the assessee vide a registered sale agreement only on 06.03.2009 for a consideration of Rs.29,08,950. According to the A.O., the assessee’s declaration of income on sale of impugned flat as a long term capital gains (LTCG) and claiming deduction u/s 54 of the Income Tax Act was patently wrong. The assessee submitted that the impugned flat which had given raise to capital gains was allotted to him on 22.02.2006 and substantial payments were made thereafter by availing bank loan. Hence, it was contended that the sale of the said flat is LTCG. This submission of the assessee was rejected by the A.O. and the assessment u/s 143(3) r.w.s. 147 of the Income Tax Act was completed vide order dated 22.03.2016, wherein the income arising on sale of the Impugned flat was treated as short term capital gains (STCG), and accordingly, deduction u/s 54 of the Income Tax Act on reinvestment was denied.

Issue of the case

The issue raised in this case is whether income arising on sale of the Impugned flat to be treated as short term capital gains (STCG) or not and accordingly, deduction u/s 54 of the Income Tax Act on reinvestment to be allowed to the assessee or deny it.

Observation of CIT(A)

The asset in question was the right to acquire the property which has been transferred to the prospective buyers and no final sale deed was executed for acquiring the property by the appellant and what was transferred by him as again only right and not an absolute property acquired through a registered document of sale. The legal ownership and title of the property would be transferred to the buyer only through a registered document after payment of requisite stamp duty and registration charged to the Stamp Duty Authorities by registering the property in the name of the buyer. As per the India Evidence Act the instruments which are not duly stamped / registered are inadmissible evidence in the court of law. Thus, the date on registration of the property would be considered as date of the transfer of the property. Therefore, the Assessing Officer’s action in treating the capital gains arose on transfer of the original property after acquiring the rights over that property by way of registration as STCGs is hereby upheld. The grounds of appeal therefore is hereby dismissed.

Observation of ITAT Banglore

The ITAT observed that that the assessee gets a right to the impugned property on the date of allotment letter i.e. on 22.02.2006 and payment of instalment as per the terms is only a follow up action and taking delivery of possession is only a formality. Therefore, reckoning the period from 22.02.2006, i.e. the date of allotment, ITAT held that the sale of impugned flat give raise to long term capital gains and not short term capital gains as held by the authorities below. As regards the claim of deduction u/s 54 of the Income Tax Act, the assessee has furnished the details of payments on reinvestment. On perusal of same, prima facie, we are of the view that reinvestment has made within the period specified u/s 54 of the Income Tax Act. However, since the Assessing Officer and the CIT(A) had held that income arising on sale of impugned flat is short term capital gains, they did not have an occasion to consider / examine the claim of deduction u/s 54 of the Income Tax Act on reinvestment. Therefore, ITAT restore the case to the Assessing officer for the limited purpose for examining whether the assessee is entitled to deduction u/s 54 of the Income Tax Act. It is ordered accordingly.


The ITAT decided the case in favour of the assessee and held that the gain shall be considered as short term capital gain and assessee must be allowed deduction under section 54 of the Income Tax Act.

Read the full order of ITAT from below link


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