Date of allotment of property is relevant for Capital Gain and not date of registration of conveyance deed. : ITAT

Dr. Shivram, Sr. DR and Aditya Ajgaonkar, Advs. for the Appellant. Ram Tiwari, (Sr. AR) for the Respondent.

ORDER UNDER SECTION 254(1) OF INCOME TAX ACT

Pawan Singh, Judicial Member – These cross appeals are directed against the order of Ld. Commissioner of Income-tax (Appeals)-12 [Ld. CIT(A)], Mumbai dated 24.02.2016 in the assessment order passed under section 143(3) of the Act on 27.03.2014 for Assessment Year 2011-12. The Revenue has raised the following grounds of appeal:

(1) (a) On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding property at Arlington in USA cannot be treated as self occupied property as the said property is occupied by the daughter of the assessee.

(1) (b) On the facts and in this circumstances of the case and in law, the learned Commissioner(Appeals) failed to appreciate that the assessee had exercise his option under section 23(4)(a) and treated his property at Arlington USA as self occupied and the said option could not be changed in the course of assessment proceeding.

(2) (a) On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that the assessee had acquired the right in the property at Gurgaon on 19.03.2007 and period of holding on the right in the property has started from 19.03. 2007 to 10.09.2010 which is more than 36 months and, hence, the right in the property is a long-term right and so the capital gain arisen is also long-term capital gain.

(2)(b) On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals)erred in only relying on the letter dated the 19.03.2007 and ignoring the buyers agreement dated 07.11.2007 whereby the assessee was vested with the right in the property at Gurgaon and hence the period from 07.11.2007 to 31.05.2010, when the property was sold by the assessee was less than 36 months, and hence, the assessing officer had rightly taxed the gain on sale of the property at short-term capital gain.

(3) The appellant prays that the order of Commissioner (Appeals) be set aside and the order of assessing officer be restored.

2. The assessee in its cross appeal has raised following grounds of appeal:

3. The brief facts of the case are that assessee is Executive Vice Chairman and Chief Executive Officer of Allied Blenders & Distillery Private Limited, Director of De Vin Private Limited and Director of Henkell & Company India Pvt. Ltd., deriving his income from ‘Salary’, income from ‘House property’, income from ‘Capital Gain’ and from ‘Other Sources’. The assessee filed his return of income for relevant assessment year on 23 July, 2011 declaring taxable income of Rs. 3,30,85,591/-. Return on income was selected for scrutiny and the assessment order was passed on 27th March 2014 under section 143(3). The assessing officer while passing assessment order made addition of Rs. 51,98,928/-on account of annual letting value (ALV) of property at Flat No.11, Rambha Co-operative Group Housing Society, at Nepean Sea Road, Mumbai against the income declared from house property of Rs. 2,797/-. The assessing officer also denied long-term capital loss of Rs. 1,28,94,076/- by treating the same as short-term capital gain at Rs. 80,00,000/-, on his observation that holding period of the asset/ capital right is less than 36 months. On appeal before Commissioner (Appeals) the assessee was allowed long-term capital loss on transfer of asset, however, the action of assessing officer in determining the gross annual value of self occupied property at Mumbai was confirmed. Therefore, aggrieved by the order of Commissioner (Appeals) both the parties have filed their cross appeal raising the grounds of appeal as referred above.

4. We have heard the submission of ld. Representative of the parties and gone through the orders of authorities below. The grounds of appeal raised by assessee and the ground of appeal raised by revenue in its Ground No. (1)(a) & 1(b) are interconnected; therefore, all these grounds are taken together for discussion. The ld Authorised Representative (AR) of the assessee submits that during the year the assessee has two house properties, one at 888 N, Quincy Street, Unit No.1311, Arlington VA 22203, ph 2, Liberty Centre Condo in USA, which is a jointly owned property along with his wife, and other property at Flat No.11, Rambha Co-operative Group Housing Society, at Nepean Sea Road, Mumbai. Both the properties were not to let out during the year. The assessee being resident of India in the current year resided in Mumbai property and travel to USA from time to time. The assessee’s daughter is occupying the USA house. In the return of income the assessee treated the house in USA as self occupied and offered the income from house property as a deemed flat-out in respect of Mumbai property, as he felt that offering the income from house property of Mumbai house would be more beneficial to him. Based on the Municipal rateable value the assessee offered a sum of Rs. 2,797/-as income from house property. The assessee has furnished the computation of income of house property to the assessing officer, copy of which is filed before Tribunal vide page No. 4 of paper book. The assessee has also placed on record the bills related to Municipal taxes at page No. 7 to 10 paper book and the Municipal Corporation Bombay’s bills for the society are also placed on record. The evidences related with the property in USA are also placed on record. The house property in USA was purchased during the assessment year 2010-11 and was shown its self occupied in that period. As there was no scrutiny assessment for assessment year 2010-11. In subsequent year the assessee has revised the return of income and has shown the Mumbai property as self acquired property and has offered the property and USA as let out. The assessee before the assessing officer objected for adoption of fair rental value of similar property in the area as annual letting value (ALV) without any evidence on basis and without prejudice submitted that annual letting value of flat in USA may be taken as deemed to be let out. The assessee also furnished to the assessing officer his calculation regarding the USA property. The assessing officer on the basis of sale consideration of Mumbai property determined the annual letting value of this property at Rs. 6,19,253/-per month on a totally unscientific, arbitrary and on excessive basis. The ld. Commissioner (Appeals) during the First appellate stage held that USA property is occupied by his daughter, therefore it cannot be considered as self occupied and needed to be taxed.

5. The assessing officer/ revenue have also filed his appeal against the treatment of USA properties. The ld. AR of the assessee submits that the assessee should have an option of choosing as deemed to be let out the house property which is more beneficial to him for the purpose of offering income from house property and that assessee should be allowed to changes ‘self occupied property’ to deemed let out property, especially where the assessing officer change the method of computation of annual letting value. The option exercise in the course of assessment proceeding may be directed to be accepted by the assessing officer. In support of his submission the ld. AR of the assessee relied upon the decision of Tribunal in Venkatavarthan N. Iyanger v. ACIT [IT Appeal No. 5616 (Mum.) of 2015, dated 23-5-2018], Smt. Asha Bhoslev. ITO [IT Appeal No. 2552 (Mum.) of 2010, dated 21-9-2011]. In alternative submission the ld. AR submits that municipal rateable value may be accepted as one bona fide rentable value of the property in absence of any other information brought on record by the assessing officer. In support of his submission the ld. AR of the assessee relied upon the decision of Bombay High Court in case of CIT v. Tip Top Typography [2015] 368 ITR 330. The ld AR for assessee again submits that the decision of jurisdictional High Court is a binding precedent, however the assessing officer relied on the decision of Ahmedabad Tribunal in Emitici Engineering Ltd. v. Asstt. CIT [1997] 58 TTJ 27 therefore, the assessing officer is erred in estimating 8% of the total investment is rental income, especially in the city like Mumbai where the capital outlay in purchases of property yield very lower rental income compared to the total investment in the property. The ld AR further submits that reliance on the decision of Gujarat High Court in Smt. Jashvidaben C. Mehta v. CIT [1988]172 ITR 680 by ld. CIT(A) is misplaced. In that case the actual occupant in the property was cousin of the assessee and her family, however, in the case in hand the assessee had retained the house for his own occupation but permitted his own daughter to reside therein.

6. On the other hand the ld. DR for the revenue supported the order of assessing officer. The assessee himself offered the Mumbai Flat for deemed income.

7. We have considered the rival submissions of the parties and have gone through the orders of the authorities below. During the assessment the assessee has declared the income from house property of Mumbai flat at Rs.2797/- as deemed let out. The assessee was asked to justify the income offered by the assessee and the fair rental value of the similar property in the same area. The assessee furnished various details, including the cost of acquisition, rateable value of flat and the other property. The contention of the assessee was not accepted by assessing officer. The assessing officer on the basis of purchased cost estimated the annual letting value (ALV) of Mumbai flat and allowing 30% deduction determined the taxable income at Rs. 51,98,928/-. The contention of the assessee before the assessing officer to treat the USA property for adopting deemed let out was rejected. The ld. Commissioner (Appeals) also held that the USA property is occupied by the daughter of the assessee and cannot be considered as self occupied property. The ld Commissioner (Appeals) instead of considering the substitution of property for the purpose of computing income from house property and holding the USA property is nor self occupied confirmed the action of assessing officer. In our view the ld Commissioner (Appeals) once arrived at a conclusion that the USA property is not self occupied should have considered it for deemed value of consideration for the purpose of computing income from house property.

8. The co-ordinate bench of Mumbai Tribunal in Venkatavarthan N Iyengar (supra) considering the grounds of appeal realted to the substitution of property for the purpose of self occupied and deemed let out held as under:

“8. The last issue relates to substitution of Self occupied property for the purpose of sec. 23 of the Act. The assessee was owning three house properties, viz., house located at Juhu, Santacruz (E) and Vasai. The assessee declared notional rental income from Santacruz property. In the return of income, the assessee declared Vasai property as self occupied property. However, before the AO, the assessee sought to substitute Juhu Property as self occupied property. The AO took the view that the change of self occupied property is not permissible at that stage and accordingly rejected the same. The Ld CIT(A) also confirmed the same.

9. The contention of Ld A.R is that the Income tax Act does not prohibit substitution of self occupied property, since the option is given to the assessee to determine the same. There is also no bar that the option once exercised cannot be changed. The Ld D.R, on the contrary, supported the order passed by Ld CIT(A).

10. Since the provisions of the Act nowhere states that the option of selecting self occupied property, once exercised, cannot be changed, we are of the view that there is merit in the contentions of the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to adopt Juhu Property as self occupied property of the assessee.”

9. Similarly, the coordinate bench of Tribunal in Asha Bhosle V. ITO, while considering for not allowing the other property for considering for deemed let out held as under:

‘6. We have considered the rival arguments made by both the sides, perused the orders of A.O. and ld. CIT(A) and the paper book filed on behalf of the assessee. We find the provisions of Section 23(4) reads as under:—

“Section 23(4) Where the property referred to in sub-section (2) consists of more than one house:-

In the instant case, the assessee is the owner of seven flats situated at Mumbai and Pune apart from a house under construction at Lonavala. The assessee, no doubt, has specified earlier that the flat at Maryland is self occupied house property. However, during the course of assessment proceedings, she changed her stand and requested the A.O. to consider the flats at Vikas Anand at Khar as self occupied property since it was beneficial to her. Under these circumstances, we are of the considered opinion that the A.O. should have considered the flats at Vikas Anand Co. Op. Hsg. Soc., Khar as self occupied house property instead of Maryland property claimed in the return of income especially when he has changed the method of computation of income from self occupied house property by adopting 8% of cost of construction as ALV as against Municipal ratable value adopted by the assessee. It has been held by the Hon’ble Bombay High Court in the case of Balmukund Acharya vs. DCIT reported in [2009] 310 ITR 310 that the A.O. should not take advantage of the assessee’s ignorance of law. Since the claim of the ALV by the assessee on the basis of Municipal Ratable value has been rejected by the A.O. and the same was substituted by him at 8% of the cost of construction, the A.O., in our opinion should have considered the flat at Vikas Anand as self occupied property since it was more beneficial to the assessee. In this view of the matter, we set aside the order of the ld. CIT(A) and direct the A.O. to consider the Vikas Anand property as self occupied property as against flat at Maryland property. Ground No. 1 by the assessee is accordingly allowed.’

10. Considering the factual and the legal discussions as narrated above the this ground of appeal is restored to the file of assessing officer to treat the USA property as deemed let out and determine the ALV of the said property. Needless to order that the assessing officer shall provide opportunity of hearing to the assessee before passing the order in accordance with law.

11. Hence, the grounds of appeal Nos. 1 to 3 in assessee’s appeal and grounds are allowed for statistical purpose. Consequently, the Ground No. 1(a) &1(b) in revenue’s appeal are dismissed.

12. Ground No.4 in the assessee’s appeal is consequential, therefore need no specific adjudication.

13. In the result the appeal of the assessee is partly allowed.

14. Ground No. 2(a) and 2(b) in revenue’s appeal relates to allowing long term capital loss on sale of property holding that the asset was hold for more than 36 months.

15. The ld. DR for the revenue submits that the assessee held the asset for less than 36 month. The assessee acquired the property only on 07.11.2007, when the developer executed agreement in favour of the assessee. The ld. Commissioner (Appeals) erred in relying upon the letter/confirmation dated 19 March 2007 and ignored the buyers agreement dated 7th November 2007. The assessee acquired right with regard to the property only from the date of execution of buyers agreement on 7th November 2007 till 31st May 2010, when the property was sold by the assessee to third person. The holding period of the property/asset was less than 36 months; therefore the assessing officer rightly taxed the gain on sale of property and short-term capital gain. The ld. DR prayed for reversing the order of Commissioner (Appeals) and to restore the order of assessing officer.

16. On the other hand the ld.AR of the assessee submits that assessee during the year assigned his right in a Garden Villa Apartment at a project called Palm Springs in Gurgoan to ‘Adnis Buildcon Private Limited’ for reconsideration of Rs. 5.70 Crores. The agreement made between the assessee and Adnis Buildcon Private Limited is dated 28th of May 2010. The builder has given the confirmation dated 10 September 2010, copy of which was given to the assessing officer and is also filed on record at page No100 of the paper book. The assessee has also filed the ledger and bank statement evidencing the receipt of the sale consideration. The assessee acquired the rights in the said property on 19th March 2007 from Mrs Kajal Aijaz. Agreement between the seller and assessee was executed on 12th February 2007, copy of which is placed on record at pages No. 67 to 70 paper book. The assessee also filed the copy of confirmation of the builder about the transfer right confirmation dated 19th March 2007. The receipt of payment to the seller in transfer deed to the buyer is also placed on record.

17. The assessee suffered at long-term capital loss of Rs. 1,28,94,076/- after indexation on the said assignment. The computation of long-term capital loss is also filed at page No.112 of paper book. The ld. AR further submits that all agreements were unregistered; however, the final sale deed was to be registered as per the agreement. The assessing officer erroneously observed that on 12th February 2007, the seller had merely given her booking to the assessee and had neither transferred the property nor the title of the property to the assessee. The assessing officer held that apartment buyer’s agreement dated 7th November 2007 was the document by virtue of which the assessee’s name came on record on the all documents. The assessing officer held that the agreement of whatever nature receipt would be of no consequences and no right could be acquired by buyer in an apartment without entering into buyer’s agreement. The learned Commissioner (Appeals) correctly appreciated the fact of the case after considering the confirmation of the builder dated 19th March 2007 that the said property had been transferred in the name of assessee and therefore the period of holding started from 19th March 2007 and hence there was a long-term gain (loss). The ld. AR further submits that as per agreement dated 12th February 2007 the transfer charges was paid to the builder on 3rd March 2007, copy of which is filed at page No. 46 of the paper book, consideration was paid on 5th March 2007 and the letter confirming the caption property was transferred in the name of assessee is 19th March 2007. Therefore, the date of creation of the right is 19th March 2007 in accordance with the provision of section 2(14) of the Act. The property itself was specific, the right of the seller had seized upon the payment of the entire consideration, the transfer charges and confirmation of the builder. Therefore, the date of transfer is to be the date on which the builder has received the transfer fee for transferring property to the assessee. Section 2(47) states that the transfer of capital asset is ‘the sale, exchange or relinquishment of the capital asset of the extinguishment of any right there in’. It is therefore clear that on 19th March 2007 there had been a ‘transfer’ of capital asset as per the provision of Income-tax Act. The definition of short-term capital asset as per section 2(42A), the legislature has used the expression ‘held’. It may be further noted that in various other allied or similar section, the legislature has preferred to use the expression ‘acquired’ or ‘purchased’ e.g. in section 54/54F. Thus, the legislature was conscious of the fact while making use of this expression. The expression like ‘owned’ has not been used for the purpose of determining the nature of asset as short-term capital asset or long-term capital asset. The intention of legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with the absolute legal right ownership of the asset for determining of the holding period.

18. In support of his submission the ld. AR of the assessee relied upon the decision of Tribunal in Anita D. Kanjani v. Asstt. CIT [2017] 163 ITD 451 (Mum. – Trib.), CIT v. A. Suresh Rao [2014] 41 taxmann.com 475/223 Taxman 228 (Mag.) (Kar.) and in Vinod Kumar Jain v. CIT [2012] 344 ITR 501 (Punj. & Har.). The learned AR of the assessee prayed for confirming the order of Commissioner (Appeals).

19. We have considered the rival submission of the parties and have gone through the orders of authorities below and the material placed before us. During the assessment the assessing officer noted that the assessee has sold immovable property for a total consideration of Rs. 5.70 Crores. On the sale of said property the assessee declared long-term capital loss of Rs. 1,28,94,076/-. The assessee was asked to furnish the detail along with the documents of purchased and sold. The assessee furnished the complete details along with the documentary evidences. The assessee along with its reply dated 12th October 2012 furnished copy of the document related to purchase and sale of the said property. The assessee contended that assessee Mrs. Kajal Aijaz booked the property at Garden villa From the Builder M/s. Emmar MGF Land Private Limited, thereafter Mrs Kajal Aijaz sold her booking to the assessee. The assessee furnished agreement of sale dated 12th February 2017. The assessee also furnished the payment receipt of Rs. 2.07 Crores, which is a scanned by assessing officer at page 14 of the assessment order. The assessee also furnished copy of buyer’s agreement dated 7th November 2007. The assessing officer to took the view that Mrs Kajal Aijaz transferred her booking right to the assessee. The contention of the assessee that acquired/purchased property on 12 February, 2007 was not accepted by assessing officer. The assessing officer concluded that the title of the property was changed only by way of buyer’s agreement on 7th November 2011. Any other agreement whatsoever nature and receipt of money would be of no consequences and no right could be acquired by the assessee in the apartment, without entering in the apartment buyer’s agreement. The assessee has sold his right on 31st May 2010; therefore, the assessee transferred the apartment before the period of 36 months from the date of purchase which was considered by assessing officer as 7th November 2007. On the basis of his conclusion the assessing officer denied the long-term capital gain (loss) and treated the same as short-term capital gain and worked out the gain at Rs. 80.00 lakhs. The ld. Commissioner (Appeals) after considering the submission of the assessee and the assessment record observed that the assessee purchased right from Mrs. Kajal Aijaz. The assessing officer disputed it assessee has purchased the right from Mrs. Kajal Aijaz but had still not received that for right in the property. The proper right in the property was received by assessee only when builder head given its approval by signing the bias agreement dated 7 November 2007. The learned Commissioner (Appeals) further noted that the assessee, during the appellate proceeding, filed confirmation letter dated 19 March 2007, wherein the builder had confirmed the transaction that the captioned property has been transferred in the name of the assessee on 19.03.2007. From this letter it’s also clear that effectively the assessee received the right in the property on 19th March 2007. Therefore, the period of holding of the said property started from 19 March 2007 to September 2010 which is more than 36 months. Hence, the right in the property held by the assessee’s long-term so the capital gain arrives is also long-term capital gain and directed the assessing officer to work out the gain as long-term capital gain. The assessing officer was also directed to verify the claim of expenses of Rs. 9,56,250/- and the additional cost incurred by assessee for Rs. 1 3,21,704/-. We have noted that the assessing officer while scanning the receipt of payment made to Mrs. Kajal Aijaz, has not appreciated that the assessee has paid Rs. 15.00 lakhs through Cheque on 09.02.2007, Rs.49,36,482/-, Rs.9,56,250/- and Rs. 1,33,79,438/- by way of pay order on 03.03.2007. Therefore, the assessee has paid total of Rs.2,07,72,170/- to Mrs. Kajal Aijaz. Apart from the payment made to Mrs. Kajal Aijaz the assessee paid substantial payment to Builder, which is not disputed by assessing officer.

20. The coordinate bench of Tribunal in Anita D. Kanjani (supra) held that in order to determine the nature of asset income of section 2(42A), holding period is to be computed from date of issue of allotment letter and not from the date when agreement to sell was registered. The Hon’ble Karnataka High Court in case of A. Suresh Rao (supra) held that it is not necessary; the assessee should be the owner of the asset, with a registered deed of conveyance confirming the title on him. In the light of expanded definition is contained in section 2(47) even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or retained the same in part performance of contract under section 53A of Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Further, Hon’ble Delhi High Court in CIT v. K Ramakrishnan [2014] 363 ITR 59 held that in order to determine taxability of capital gain arising from the sale of property, it is the date of allotment of property which is relevant for the purpose of computing holding period and not the date of registration of conveyance deed.

21. In view of the above factual and legal discussion, we do not find any illegality and infirmity in the order passed the ld Commissioner (Appeals), which we affirms. No contrary facts or law in brought to our notice to take contrary view. In the result these grounds of appeal raised by revenue are dismissed.

22. In the result the appeal filed by the revenue is dismissed.

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