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Shri Pradeep Kar Versus The Assistant Commissioner of Income Tax, Circle 12 (1) , Bangalore

2016 (5) TMI 1033 - ITAT BANGALORE

Gain arising from transfer of flat in National Co-operative Group Housing Society as Short term or long term in nature - Held that:- Since the assessee has acquired the right in the flat from the date of allotment of share certificate in his favour, the capital gain accrued to the assessee is in the nature of long term capital gain, whereas computation of the same varies on account of payments made by the assessee on different dates towards acquisition of the flat. Accordingly, we set aside the .....

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y the assessee against the order dated 19.02.2014 of the CIT(Appeals)-III, Bangalore inter alia on various grounds, which are as under:- 1. That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income and total tax liability computed is hereby disputed. 3. That the AO/CIT(A) erred in treating/holding the gain arisi .....

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riate authority the appellant begs for consequential relief in the levy of interest u/ s 234D of the Act. 8. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 2. Ground Nos.1 to 5 relate to nature of capital gain accrued to the assessee on sale of flat acquired from a Co-operative Group Housing Society. According to assessee, the flat was booked in a s .....

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acquired the property on 22.2.2003 and was sold on 19.1.2006. Therefore assessee retained the capital asset with him for a period less than 36 months and is eligible only for short term capital gain. 3. Aggrieved, the assessee preferred an appeal before the CIT(Appeals), but did not find favour with him. 4. Now the assessee is before the Tribunal with the submission that by acquiring share for one flat in the Co-operative Group Housing Society, the assessee got certain rights in the capital ass .....

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received for giving up the right to specific agreement of an agreement to sell constitutes, capital gain chargeable to tax; however deduction is allowable as per section 48 of the Income-tax Act, 1961 [hereinafter referred to as the Act ]. Heavy reliance was placed upon the judgment of Hon ble Gujarat High Court in the case of CIT v. Jindas Panchand Gandhi, 200 CTR 473, in which it has been held that the assessee having sold the flat allotted to him by a co-operative housing society after a peri .....

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that since the assessee acquires the right in the immovable property from the date of allotment of shares in his favour, the period of holding the capital asset should be counted from the date of allotment of shares and not from the date of allotment of flat to him. 6. The ld. DR, besides placing reliance upon the order of CIT(Appeals), has invited our attention to the judgment of Hon ble High Court of Karnataka in the case of CIT V. Dr. V.V. Modi, 218 ITR 1, in which it has been held that the a .....

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d the shares for allotment of a flat by the society on 5.8.1993. Thereafter, he made various payments to the society towards construction of Co-operative Group Housing Society building and finally the constructed flat was allotted to the assessee on 22.2.2003, which was sold on 19.1.2006. The assessee offered the capital gain accrued on its sale as long term capital gain, whereas the AO treated it to be short term capital gain. Now the issue before us is the nature of capital gain accrued to the .....

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ty; meaning thereby, by simple acquisition of share certificate on certain payment to the society, assessee acquired certain rights in the immovable asset. In the instant case, after acquisition of share certificate, the assessee had made payments towards construction of the flat in the society, which was later on allotted to the assessee. Thus, on transfer of right in the flat, assessee acquires a capital gain. The right in the flat is acquired on allotment of share by the society. In respect o .....

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immovable property. The right to obtain conveyance of immovable property falls within the expression property of any kind used in section 2(14) and consequently it is a capital asset. The relevant findings of the Hon'ble jurisdictional High Court are extracted hereunder for the sake of reference:- The word 'capital asset' means property of any kind held by the assessee which does not necessarily be confined to an immovable property. Similarly, when the word 'transfer' in rela .....

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ent of any rights therein', the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific-performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meanin .....

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ions under s. 48, would be the income chargeable under the heading capital gains. In the instant case both the assessees entered into an agreement to purchase the immovable property and paid ₹ 1,00,000 as advance amount. It is the cost of acquisition. They filed a suit for specific performance of the agreement of sale. It is thereafter under an agreement entered into between them and the purchasers, they gave up their right to sue for specific performance in lieu of a payment of ₹ 7, .....

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, the Hon ble High Court held that the assessee having sold the flat allotted to him by a co-operative housing society after a period of 36 months from the date of allotment, capital gains arising to him were long term capital gains, despite the fact that physical possession of the flat was given to the assessee much later and therefore, he was entitled to deduction from such gains as per law. 10. In the case of DCIT v. Smt Sita Devi Wadhwa in ITA No.239(Del)2010, the Delhi Bench of the Tribunal .....

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.1982. Same brought about a merger of interest of lesser interest held by him in the bigger estate acquired by him under the sale deed upon acquiring the title. The Hon ble High Court further held that the question of assessee intending to keep the two capacities, one of leasehold rights and the other of ownership, separately does not arise. He became absolute owner on 29.3.1982 and thereafter sold the site on 27.11.1982. What he transferred was a right held by him from the date of sale in his f .....

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on the allotment of share certificate in his favour, the flat which has been allotted to the assessee on completion of the project cannot be transferred or allotted to any other person, without the consent of the assessee. The issue with regard to nature of capital gain on such transfer of right has been adjudicated by the Lucknow Bench of the Tribunal in the case of Karunesh Agarwal v. DCIT in ITA No.182/Lkw/2015 in which the Tribunal has held that the assessee acquired the right in the propert .....

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cember 2002 can be considered day on which the property i.e. residential house has been transferred. Having examined the various aspect and the provisions of law the Hon ble Apex Court has categorically held that the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provision of section 54 r.w.s. 2(47) of the Act i.e. definition of transfer which would enable the assessee to get the benefit u/s 54 of the Act. The relevant observat .....

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y the appellants and the sale deed had been registered on 24th September, 2004. The sale deed had been executed in pursuance of an agreement to sell which had been executed on 27th December, 2002 and out of the total consideration of ₹ 1.32 crores, ₹ 15 lakhs had been received by the appellants by way of earnest money when the agreement to sell had been executed and a new residential house/new asset had been purchased by the appellants on 30th April, 2003. It is also not in dispute t .....

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erty, i.e. 27th December, 2002 as the date of transfer or sale, it cannot be disputed that the appellants would be entitled to the benefit under the provisions of Section 54 of the Act because long term capital gain earned by the appellants had been used for purchase of a new asset/residential house on 30th April, 2003 i.e. well within one year from the date of transfer of the house which resulted into long term capital gain. 20. The question to be considered by this Court is whether the agreeme .....

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nam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Secti .....

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ip;…………………… 21. Now in the light of definition of transfer as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforestated definition, let us look at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on 27th .....

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i Ranjeet Lal, the appellants were restrained from dealing with the said residential house and a law-abiding citizen cannot be expected to violate the direction of a court by executing a sale deed in favour of a third party while being restrained from doing so. In the circumstances, for a justifiable reason, which was not within the control of the appellants, they could not execute the sale deed and the sale deed had been registered only on 24th September, 2004, after the suit filed by Shri Ranj .....

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l the property to someone else in accordance with law. A right in personam had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid ₹ 15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand. 22. In addition to the fact that the term tran .....

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ntial premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Th .....

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ng a claim for exemption from tax. It has also been said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the aforestated observations and the principles with regard to the interpretation of Statute pertaining to the tax laws, one can very well interpret the provisions of Section 54 read with Section .....

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ch an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. 24. Thu .....

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ction 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house. 27. In light of the aforesaid judgment of Hon ble Apex Court, we find force in the contention of the assessee that the residential house was acquired throu .....

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have not computed the capital gain in terms of provisions of section 45(2) of the Act and has not allowed deduction to the assessee u/s 54 of the Act, we direct the AO to recompute the capital gain in terms of provisions of section 45(2) of the Act and allow deduction u/s 54 of the Act in respect to the residential house purchased by the assessee. 28. Ground No. 3 & 4 relate to disallowance of expenditure paid under the head commission to different commission agents. In this regard on perusa .....

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before the ld. CIT(A) but ld. CIT(A) did not find favour with the ld. CIT(A). 30. Now the assessee is in appeal before the Tribunal and during the course of hearing it was contended on behalf of the assessee that the commission agents have filed the confirmation letters in response to the notices issued by the AO. The copy of return of all the commission agents were also filed before the AO in which the assessee has offered the receipt of commission as income and the same was also accepted by t .....

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venue has no right to disallow the claim of the expenditure in the hands of payer. Therefore, the claim of payment of commission to commission agents should be allowed. 32. The ld. DR simply placed reliance on the order of the ld. CIT(A). 33. Having carefully examined the order of lower authorities and the documents available on record, we find that the assessee has claimed the payment of commission on sale of flats to various commission agents and during the course of assessment proceedings the .....

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