Mrs. Madhu Kaul, House v. Commissioner Of Income Tax, Chandigarhand Another

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Appeal No.89 of 1999 Date of Order: 17th January, 2014 Mrs. Madhu Kaul, House No.2042, Sector 15-C.Chandigarh ...Appellant Versus Commissioner of Income Tax, Chandigarhand another. ..Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Mr. Alok Mittal, Advocatefor the petitioner.Ms. Urvashi Dhugga, Advocate,for the respondents. RAJIVE BHALLA, J. The appellant challenges correctness of order, dated15.03.1999 (Annexure P-3), passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh. The substantialquestions of law that arise for adjudication are as follows;- “(i) Whether in the facts and circumstances of thecase, the orders annexure P-1, P-2 and P-3 arelegally sustainable? (ii) Whether in the facts and circumstances of thecase, the capital gains arising in the instant islong term capital gain or short term capital gain?(v)Whether in view of correct interpretation ofprovisions of Section 2(29A); Section 2(29B); -2- Section 2(42A); Section 2(42B) and Section 2(47)(ii) of Income Tax Act, 1961, the capital gainarising in the present case can be termed aslong term capital gain?” The appellant filed a return of income declaring a nettaxable income at Rs.60,830/-. The return was selected forscrutiny. The assessee's claim for treating Rs.2,38,609/-received from sale of flat no.421, Sector 44-A, Chandigarh, as along term capital gain, was rejected by treating it as a short termcapital gain. The assessee filed an appeal before theCommissioner of Income Tax (Appeals), which was dismissedon 06.08.1991. An appeal filed before the Income Tax AppellateTribunal was dismissed on 15.03.1999. Counsel for the assessee submits that the flat wasallotted on 07.06.1986, vide letter, conveyed on 30.06.1986.The first installment was paid on 04.07.1986. The flat was soldon 05.07.1989, i.e., after 36 months. The sale, therefore, resultsin long term capital gain. It is further contended that right, tohold flat came to vest in the assessee upon allotment and at thelatest upon payment of Rs.7500/- on 04.07.1986. The sale ofthe said flat on 05.07.1989, reveals that the assessee held thecapital asset for a period exceeding 36 months. It is furthersubmitted that identification of the flat or physical delivery ofpossession is irrelevant as right to hold property stands Income Tax Appeal No.89 of 1999 crystalised upon allotment and payment of the first installment.The allotment of a particular flat and delivery of its possessionwould relate back to the allotment and payment of the firstinstallment. The appellant having held the flat from 04.07.1986,the date of payment of first installment to 05.07.1989, fulfills theparameters of a long term capital gain, thereby rendering theimpugned orders illegal and void. It is further contended that thequestion of law framed in the present appeal has beenanswered in favour of the assessee in ITA NO.140 of 2000(Vinod Kumar Jainv. Commissioner of Income Tax,Ludhiana and others), decided on 24.09.2010. Counsel for the revenue per-contra submits that mereallotment and or payment of the first installment withoutidentification of the flat or delivery of possession has been rightlyheld not to confer any right vis-a-vis flat no.421, Sector 44-A,Chandigarh, which was allotted to the assessee, on 30.11.1988.It is further submitted that the allotment letter could be cancelledat any time and it does not confer any right in any specific unitbut merely confers a right to be allotted a unit. The definition oftransfer contained in Section 2(47) of the Income Tax Act, 1961has to be read against the assessee and, therefore, the appealmay be dismissed. We have heard counsel for the parties and perusedthe impugned order. Counsel for the revenue per-contra submits that mereallotment and or payment of the first installment withoutidentification of the flat or delivery of possession has been rightlyheld not to confer any right vis-a-vis flat no.421, Sector 44-A,Chandigarh, which was allotted to the assessee, on 30.11.1988.It is further submitted that the allotment letter could be cancelledat any time and it does not confer any right in any specific unitbut merely confers a right to be allotted a unit. The definition oftransfer contained in Section 2(47) of the Income Tax Act, 1961has to be read against the assessee and, therefore, the appealmay be dismissed. We have heard counsel for the parties and perusedthe impugned order. The Income Tax Appellate Tribunal has held that as aspecific flat was allotted to the assessee, on 30.11.1988, theallotment letter or payment of first installment does not entitlethe appellant to claim a long term capital gain. A similarcontroversy came up for adjudication in ITA No.140 of 2000(Vinod Kumar Jainv. Commissioner of Income Tax,Ludhiana and others), decided on 24.09.2010. The point forconsideration in the aforesaid case was whether capital gainarising from allotment of flat on 27.02.1982, under a schemeframed by DDA, though, the actual flat was allotted andpossession was delivered on 15.05.1986 was a long term capitalgain as the flat was sold on 06.01.1989. After consideringSections 2(29-A),(42A) read with Section 54 of the Income TaxAct, 1961 as well as Circular No.471, dated 15.10.1986, it washeld as follows:- 11. Section 2(14) defines capital asset. UnderSection 2(29A) long term capital asset isone which is not a short term capital asset.According to Section 2(42A) short termcapital asset at the relevant time meant, acapital asset held by an assessee for notmore than thirty-six months immediatelypreceding the date of its transfer. A conjointreading of aforesaid provisions leads to one conclusion that a capital asset which is heldby the assessee for 36 months would betermed as a long term capital asset and any gain arising on account of sale thereofwould constitute long term capital gain. 12. It would also be advantageous to refer toCircular No. 471, dated 15.10.1996 [162ITR (st.) 41] issued by CBDT on whichheavy reliance has been placed by theassessee whereby instructions have beenissued regarding treatment of capital gainstax in case of a flatpurchased under Self-Financing Scheme. It reads thus:- Circular No. 471, dated 15.10.1996 [162ITR (st.) 41] issued by CBDT on whichheavy reliance has been placed by theassessee whereby instructions have beenissued regarding treatment of capital gainstax in case of a flatpurchased under Self-Financing Scheme. It reads thus:- “CIRCULAR NO. 471 Capital gains tax- Whether investment in aflat under the Self-Financing Scheme of theDelhi Development Authority would beconstruction for the purpose of ss.54 and54F of the IT Act, 1961. 15/10/1986 CAPITAL GAINS SECTIONS 54, 54F. Secs. 54 and 54F of the IT Act, 1961,provide that capital gains arising on transfer of a long-term capital asset shallnot be charged to tax to the extentspecified therein, where the amount ofcapital gain is invested in a residentialhouse. In the case of purchase of a house,the benefit is available if the investment ismade within a period of one year before orafter the date on which the transfer tookplace and in case of construction of ahouse, the benefit is available if theinvestment is made within three years fromthe date of transfer. 15/10/1986 CAPITAL GAINS SECTIONS 54, 54F. Secs. 54 and 54F of the IT Act, 1961,provide that capital gains arising on transfer of a long-term capital asset shallnot be charged to tax to the extentspecified therein, where the amount ofcapital gain is invested in a residentialhouse. In the case of purchase of a house,the benefit is available if the investment ismade within a period of one year before orafter the date on which the transfer tookplace and in case of construction of ahouse, the benefit is available if theinvestment is made within three years fromthe date of transfer. 2. The Board had occasion to examineas to whether the acquisition of a flat by anallottee under the Self-Financing Schemeof the Delhi Development Authorityamounts to purchase or its construction bythe Delhi Development Authority on behalfof the allottee. Under the Self-FinancingScheme of the Delhi DevelopmentAuthority the allotment letter is issued onpayment of the first instalment of the costof construction. The allotment is finalunless it is cancelled or the allottee -7- withdraws from the Scheme. The allotmentis cancelled only under exceptionalcircumstances. The allottee gets title to theproperty on the issuance of the allotmentletter and the payment of instalments isonly a follow-up action and taking thedelivery of possession is only a formality. Ifthere is a failure on the part of the DelhiDevelopment Authority to deliver thepossession of the flat after completing theconstruction, the remedy for the allottee isto file a suit for recovery of possession. 3. The Board have been advised thatunder the above circumstances, theinference that can be drawn is that theDelhi Development Authority takes up theconstruction work on behalf of the allotteeand that the transaction involved is not asale. Under the Scheme, the tentative costof construction is already determined andthe Delhi Development Authority facilitatesthe payment of the cost of construction ininstalments subject to the conditions thatthe allottee has to bear the increase, if any, in the cost of the construction. Therefore,for the purpose of capital gains tax, thecost of the new asset is tentative cost ofconstruction and the fact that the amountwas allowed to be paid in instalments doesnot affect the legal position stated above.In view of these facts, it has been decidedthat cases of allotment of flats under theSelf-Financing Scheme of the DelhiDevelopment Authority shall be treated ascases of construction for the purpose ofcapital gains.” 13. On careful reading of the Circular issued bythe Board, para 2 thereof describes thenature of right that an allottee acquires onallotment of flat under Self-FinancingScheme. According to it, the allottee getstitle to the property on the issuance of anallotment letter and the payment ofinstalments is only a consequential actionupon which the delivery of possessionflows.” We find no distinction between the opinion recordedin the aforesaid judgment and the controversy in the present Income Tax Appeal No.89 of 1999 -9- case. Admittedly, the flat was allotted to the appellant on07.06.1986, vide letter conveyed to the assessee on30.06.1986. The assessee paid the first installment on04.07.1986, thereby conferring a right upon the appellant to holda flat, which was later identified and possession delivered on alater date. The mere fact that possession was delivered later,does not detract from the fact that the allottee was conferred aright to hold property on issuance of an allotment letter. Thepayment of balance installments, identification of a particular flatand delivery of possession are consequential acts, that relateback to and arise from the rights conferred by the allotmentletter. Income Tax Appeal No.89 of 1999 -9- case. Admittedly, the flat was allotted to the appellant on07.06.1986, vide letter conveyed to the assessee on30.06.1986. The assessee paid the first installment on04.07.1986, thereby conferring a right upon the appellant to holda flat, which was later identified and possession delivered on alater date. The mere fact that possession was delivered later,does not detract from the fact that the allottee was conferred aright to hold property on issuance of an allotment letter. Thepayment of balance installments, identification of a particular flatand delivery of possession are consequential acts, that relateback to and arise from the rights conferred by the allotmentletter. In view of what has been recorded hereinabove, wehave no hesitation in holding that the Income Tax AppellateTribunal has erred in holding that the transaction does notenvisage a long term capital gain. Consequently, we allow theappeal, set aside order dated 15.02.1999 and answer thesubstantial questions of law in favour of the assessee. (RAJIVE BHALLA) JUDGE 17[th] January, 2014 (DR. BHARAT BHUSHAN PARSOON)ntJUDGE