The Tribunal After Going v. Heard Mr.m.swaminathan, Learned Standing Counsel Appearingfor The Revenue And Perused The Materials Placed Before This Court.https://Hcservices.ecourts.gov.in/H

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE R.SUDHAKARANDTHE HONOURABLE MR.JUSTICE R.KARUPPIAH Tax Case (Appeal) No.976 of 2014 Commissioner of Income TaxSalary Circle, Chennai.... AppellantVs. Sri.S.R.JeyashankarNo.19/13, P.S.Sivasamy Salai,Mylapore, Chennai - 600 004....Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 27.06.2014 made in I.T.A.No.1264/Mds/2013 on the fileof the Income Tax Appellate Tribunal 'C' Bench, Chennai for theassessment year 2009-10, appeal against the order of the LearnedCommissioner of Income Tax (A) VI, Chennai, dated 28.12.2012 in ITANo.159/11-12, passed under section 143 (3) 'read with section 250 ofthe Income Tax Act, 1961 against assessment order under section 143(3) by the Deputy Commissioner of Income Tax, Salary Circle IV,Chennai 34, dated 30.12.2011.For Appellant : Mr.M.Swaminathanassisted by Mr.K.Suresh KumarStanding Counsel for Income Tax J U D G M E N T(Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) filed by the Revenue as against the orderof the Income Tax Appellate Tribunal comes up for admission and theRevenue has raised the following substantial questions of law: “1. Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal was rightin holding that the date of allotment letter issued bythe builder of the flat is to be considered as the dateof acquisition of the property under Section 2(42A) ofthe Income Tax Act? 2. Whether on the facts and in the circumstancesof the case for the purpose of computing holding thehttps://hcservices.ecourts.gov.in/hcservices/ period of the property the date of allotment letterissued by the builder of the flat is to be considered orthe date of delivery of possession of the flat is to beconsidered?" 2. The assessment in this case relates to the assessment year2009-10. The assessee had purchased the undivided share of land of2150 sq.ft. out of a large extent of 4 grounds and 400 sq.ft.situated in S.Nos.2766 and 67, RS No.1570/4 at No.1, Binny Road,Chennai. Prior to the purchase of this undivided share in land, theassessee had entered into an agreement with M/s.Vishranthi Homes Pvt.Ltd. (in short VHPL), Chennai for constructing the built-up area of3465 sq.ft. including common area in the above-said undivided shareof land. The agreement was for purchase of land as well as forconstruction of home by a project promoted by VHPL. The agreementwas determined for a consideration at Rs.81,68,811/- to be paid bythe assessee to the builder VHPL towards construction of theresidential unit. Thereafter, the assessee sold the entire unit by asale deed dated 10.4.2008 well after 36 months from the date ofagreement dated 22.2.2005 and claimed the difference between the costof acquisition and sale consideration as long term capital gains. 3. The Assessing Officer, however, took a view that theundivided share of land was registered on 4.8.2005 and since theproperty was purchased in the month of August, 2005 and sold inApril, 2008, the capital gains arising from sale will be assessed asshort terms capital gains only and accordingly, the Assessing Officerdenied benefit of Section 2(29A) of the Income Tax Act and madeaddition. As against the said order, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals), who placing relianceon Circular No.471 dated 15.10.1986 allowed the appeal filed by theassessee. Aggrieved by the said order, the Revenue has filed anappeal before the Income Tax Appellate Tribunal. 3. The Assessing Officer, however, took a view that theundivided share of land was registered on 4.8.2005 and since theproperty was purchased in the month of August, 2005 and sold inApril, 2008, the capital gains arising from sale will be assessed asshort terms capital gains only and accordingly, the Assessing Officerdenied benefit of Section 2(29A) of the Income Tax Act and madeaddition. As against the said order, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals), who placing relianceon Circular No.471 dated 15.10.1986 allowed the appeal filed by theassessee. Aggrieved by the said order, the Revenue has filed anappeal before the Income Tax Appellate Tribunal. 4. The Tribunal after going through the detailed order of theCommissioner of Income Tax (Appeals) and taking note of the twodecisions of the Punjab and Haryana High Court, namely, 363 ITR 54(Mrs.Madhu Kaul v. CIT) and 344 ITR 501 (Vinod Kumar Jain vs. CIT)and also on the basis of Circular No.471 dated 15.10.1986 came tohold that the date of allotment of the flat has to be adopted as dateof acquisition of the immovable property when it comes to acquiring aflat from the promoter of the flat by way of executing constructionagreement and not the date of the sale deed for purchase of therelevant undivided share in land. Accordingly, the Tribunalconfirmed the order of the Commissioner of Income Tax (Appeals),dismissed the appeal filed by the Revenue. Aggrieved by the saidorder of the Tribunal, the Revenue has filed the present Tax Case(Appeal). 5. Heard Mr.M.Swaminathan, learned standing counsel appearingfor the Revenue and perused the materials placed before this Court.https://hcservices.ecourts.gov.in/hcservices/ 6. The short issue that arises for consideration is whether theasset which was sold by the assessee would be subject to short termcapital gains in terms of Section 2(42A) or long term capital gainsin terms of Section 2(29A) of the Income Tax Act. There is nodispute with regard to the purchase of the capital asset. In orderto appreciate the claim of the assessee, the Tribunal has consideredthe following facts in paragraph 7 of the order, which reads asfollows: "7. We have heard the rival submissions and carefullyperused the materials on record..... On perusing the case, the following facts emerge vividly:- (1) The assessee has paid to the builder M/s.VishranthiHomes Pvt.Ltd a sum of Rs.2,30,000/- vide cheque No.580053dated 22.2.2005 drawn on Vysya Bank Limited, Chennai. (2) On the same day, i.e. 22.2.2005, the assesseeentered into an agreement with M/s Vishranthi Homes Pvt. Ltdwherein M/s.Vishranthi Homes Pvt. Ltd had undertaken toconstruct a flat of 3465.34 sq.ft. The other relevant factsin the agreement are listed herein below:- (a) The builder M/s Vishranthi Homes Pvt. Ltd hasallotted a flat in the first and second floor (Duplex) onthe rear side of the building to be known as "Ganeshram"along with two reserved car parking. (b) The builder had entered into an agreement with theowner of the land for acquiring 40% of undivided share inthe land on which the building "Ganeshram" was to beconstructed well before 22.02.2005. (c) The builder has nominated the 'allottee' being theassessee to purchase 2150 sq.ft., of undivided share in landdescribed in Schedule-A. (d) The sale consideration for the land was to be paiddirectly to the landlord on the purchase of the 2150 sq.ft.,of undivided share in land while as construction cost ofRs.81,68,811/- has to be paid to the builder. (e) Various rights and duties of the allottee and thebuilder were also mentioned in the agreement." (b) The builder had entered into an agreement with theowner of the land for acquiring 40% of undivided share inthe land on which the building "Ganeshram" was to beconstructed well before 22.02.2005. (c) The builder has nominated the 'allottee' being theassessee to purchase 2150 sq.ft., of undivided share in landdescribed in Schedule-A. (d) The sale consideration for the land was to be paiddirectly to the landlord on the purchase of the 2150 sq.ft.,of undivided share in land while as construction cost ofRs.81,68,811/- has to be paid to the builder. (e) Various rights and duties of the allottee and thebuilder were also mentioned in the agreement." 7. On the basis of the above admitted facts, the Tribunal placedreliance on the decision of the Punjab and Haryana High Courtreported in 363 ITR 54 (Mrs.Madhu Kaul v. CIT), where an identicalissue arose as to whether the date of capital gains should bereckoned from the date of allotment under a scheme framed by the DDAor it should be reckoned from the date of actual sale, which issubsequent to the date of allotment. The Punjab and Haryana HighCourt relied upon the circular, which was issued in relation to theallotment of flats to allottees under self-financing scheme of DDA,came to hold that a right has been conferred on the allottee to holda flat which was later identified and possession delivered on a laterdate. The High Court also held that the mere fact that possessionwas delivered later does not detract from the fact that the allotteehttps://hcservices.ecourts.gov.in/hcservices/ was conferred a right to hold property on issuance of an allotmentletter and the payment of balance instalments, identification of aparticular flat and delivery of possession are consequential actsthat relate back to and arise from the rights conferred by theallotment letter. In effect, the High Court held that the allotteegets the title to the property on issuance of allotment letter andthe payment in instalments is only a consequential act upon whichdelivery of possession to the property flows. Similar view has beentaken in the decision reported in 344 ITR 501 (Vinod Kumar Jain vs.CIT) by the Punjab and Haryana High Court. 8. The Delhi High Court has also observed in the decision, whichhas been extracted in the order of the Tribunal in paragarph 7.1 ofthe order, holding that the date of allotment of the flat to theassessee by the promotor should be adopted as the date of acquisitionof the immovable property. In the present case, the right to theproperty flows from the date of agreement with the builder, viz.,22.2.2005. Over a period of time payments have been made and thetransaction was concluded in accordance with the terms of theagreement by registering the Undivided share in land and handing overthe flat. Therefore, the assessee had a right consequent on theagreement dated 22.2.2005 in respect of the property sold by theassessee on 10.4.2008. Therefore, it exceeds the period of 36 monthsand the assessee has rightly claimed the benefit of long term capitalgains. 9. Circular No.471 dated 15.10.1986 is also on the same lines.It speaks about the right of an allottee over a property that hasbeen allotted. The other issues like payment of balance instalments,delivery of possession, which takes place after the allotment only,relates back to the original allotment, in the present case,agreement. Therefore, the principle on which long term capital gainsshould be determined has been clearly indicated in the circular. Forbetter clarity, Circular No.471 dated 15.10.1986 reads as follows: Capital gains tax - Whether investment in a flat under theSelf-Financing Scheme of the Delhi Development Authoritywould be construction for the purpose of ss.54 and 54F ofthe IT Act, 196115/10/1986 9. Circular No.471 dated 15.10.1986 is also on the same lines.It speaks about the right of an allottee over a property that hasbeen allotted. The other issues like payment of balance instalments,delivery of possession, which takes place after the allotment only,relates back to the original allotment, in the present case,agreement. Therefore, the principle on which long term capital gainsshould be determined has been clearly indicated in the circular. Forbetter clarity, Circular No.471 dated 15.10.1986 reads as follows: Capital gains tax - Whether investment in a flat under theSelf-Financing Scheme of the Delhi Development Authoritywould be construction for the purpose of ss.54 and 54F ofthe IT Act, 196115/10/1986 CAPITAL GAINSSECTIONS 54, 54F, Secs. 54 and 54F of the IT Act, 1961, provide that capitalgains arising on transfer of a longterm capital assetshall not be charged to tax to the extent specifiedtherein, where the amount of capital gain is invested in aresidential house. In the case of purchase of a house,the benefit is available if the investment is made withina period of one year before or after the date on which thetransfer took place and in case of construction of ahouse, the benefit is available if the investment is madehttps://hcservices.ecourts.gov.in/hcservices/ within three years from the date of the transfer.2. The Board had occasion to examine as to whether theacquisition of a flat by an allottee under the Self-Financing Scheme of the Delhi Development Authorityamounts to purchase or its construction by the DelhiDevelopment Authority on behalf of the allottee. Underthe Self-Financing Scheme of the Delhi DevelopmentAuthority the allotment letter is issued on payment of thefirst instalment of the cost of construction. Theallotment is final unless it is cancelled or the allotteewithdraws from the Scheme. The allotment is cancelledonly under exceptional circumstances. The allottee getstitle to the property on the issuance of the allotmentletter and the payment of instalments is only a follow-upaction and taking the delivery of possession is only aformality. If there is a failure on the part of the DelhiDevelopment Authority to deliver the possession of theflat after completing the construction, the remedy for theallottee is to file a suit for recovery of possession.3. The Board have been advised that under the abovecircumstances, the inference that can be drawn is that theDelhi Development Authority takes up the construction workon behalf of the allottee and that the transactioninvolved is not a sale. Under the Scheme, the tentativecost of construction is already determined and the DelhiDevelopment Authority facilitates the payment of the costof construction in instalments subject to the conditionsthat the allottee has to bear the increase, if any, in thecost of the construction. Therefore, for the purpose ofcapital gains tax, the cost of the new asset is tentativecost of construction and the fact that the amount wasallowed to be paid in instalments does not affect thelegal position stated above. In view of these facts, ithas been decided that cases of allotment of flats underthe Self-Financing Scheme of the Delhi DevelopmentAuthority shall be treated as cases of construction forthe purpose of capital gains." 10. In the light of the above-said decisions and the Circular,we do not find any reason why the same principle should not beapplied to all transactions based on agreements in respect of capitalasset. It has been correctly pointed out by the Commissioner ofIncome Tax (Appeals) as well as the Tribunal following the decisionof the Punjab and Haryana High Court that the breach of agreementwould only give right to the beneficiary for enforcing the right overthe property. We find no reason to differ with the said reasoning. 10. In the light of the above-said decisions and the Circular,we do not find any reason why the same principle should not beapplied to all transactions based on agreements in respect of capitalasset. It has been correctly pointed out by the Commissioner ofIncome Tax (Appeals) as well as the Tribunal following the decisionof the Punjab and Haryana High Court that the breach of agreementwould only give right to the beneficiary for enforcing the right overthe property. We find no reason to differ with the said reasoning. 11. Therefore, we find no question of law much less anysubstantial question of law arises for consideration in this appeal.Accordingly, this Tax Case (Appeal) stands dismissed. No costs. Sd/-Assistant Registrar(CS-III) //True Copy//Sub Assistant RegistrarslTo1.The Income Tax Appellate Tribunal 'C' Bench, Chennai.2.The Commissioner of Income Tax (Appeals)-VII,Chennai.3.The Deputy Commissioner of Income Tax, Salary Circle IV, Chennai.1 CC to Mr.M.Swaminathan, Standing Counsel for IT Dept.,SR.No. 56699T.C.(A) No.976 of 2014CNR (CO)PSI (19.12.2014)