Income Tax

Date of Provisional Allotment Relevant for Availing Indexation Benefit

ITAT Mumbai passed a judgement on 10th November 2022 in the case titled M/s Sumit Exports Vs ACIT in respect of the appeal that the assessee filed against the order of the CIT (Appeals) National Faceless Appeal Centre, Delhi, dated 11th March 2022 relating to AY 2013-14 wherein the NFAC denied the benefit of indexation on the cost observing the capital gain on the property to be short term instead of a long term gain without considering the provisional date of allotment of the property. The article discusses the facts, issue, ground of appeal, contentions of the parties and the judgement of the tribunal to clearly explain the same.

Facts of the Case

• The assessee filed its ITR (Income Tax Return) on 28th September 2013, declaring a total income of ₹.1, 67, 34,250 the return for which was processed u/s 143(1) of the IT Act followed by the case being selected for scrutiny under CASS followed by the issuance and serving of notice u/s.143(2) & 142(1) of the IT Act on the assessee, the response of the same was submitted by the AR of the assessee.
• The assessee had a business of manufacturing and trading cut and polished diamonds. During the course of the proceedings, the AO observed that the assessee sold the office premises bearing No. BC4021 in BDP, Bandra Kurla Complex, for consideration of ₹.1.93 crores to M/s. Veer Gems vide sale Deed dated 19.05.2012, and the assessee had declared the income under the head Capital Gain relating to the above sale transaction.
• The AO further stated that the assessee had shown acquisition of property in FY 1998-99, followed by carrying out improvement in the said property in the subsequent yrs as per the working capital presented by the assessee. However, at the time of pursuing the sale agreement, the AO noticed that the assessee had received the allotment of the above-said premises only on 29.07.2010, thereby making the asset so transferred a short-term capital asset on the date of transfer, i.e., 19th May 2012 Therefore, the capital gain on the sale of this asset would be considered a short-term capital gain; therefore, the AO asked the assessee the reasons for not treating the same as a short term again, which was answered by the assessee vide letter dated 15.03.2016.
• In the said letter, the assessee stated that the term “property”, as per sec 2(14), has a wide amplitude, and the definition has re-emphasised the same by using the term “of any kind. Thus, any right that is referred as property shall be included in the definition of “capital asset. A contract for selling the land is capable of specific performance. Hence the right to acquire the office premises would clearly come under the ambit of the meaning of property as provided in Sec 2(14) of the IT Act, and once the right to purchase (i.e. obtain office premises) is proved to be an asset, it is to be seen at what time such right vested in the purchase.
• If the time difference between the date of sale and purchase is 36 months, then the said asset shall be considered a long-term asset, and the gain on sale of such asset shall be “Long Term Capital Gains, and in the case of the assessee, the allotment year was 1998-99, and on the date of sale, the right was held for more than 3 yrs making it a long term gain. 
• The AO rejected the submissions of the Appellant by observing that the assessee had transferred 892 equity shares allotted by BDP to the assessee and the office on 19th May 2012, which were allotted to him by BDP only on 29th July 2010. Although the assessee had contributed to the funds of the BDP for which a provisional allotment of office premises was provided, It must be noted that no right was created in any office space due to the fact that the office space didn’t exist at the time the assessee contributed the funds and secondarily as the office complex so built up by the property was leased to them from MMRDA on 31st March 2010, there wasnt the creation of any right which is to be constructed in the future or which is not owned by the original transferor of the property.
• The only right which could be generated regarding the payment made for such property is of receiving back the said payment, being the personal right of the assessee with regard to the money it advanced to the property and not the right over any property as such.
• The assessee’s right over the property started from the date of its allotment by the property when the complex was given on lease by MMRDA to the property. In any case, the sale of the office space and shares BKC were made by the assessee prior to the expiry of 3 years from their Allotment to the assessee, thereby making such sale consideration as aSTGS as against the LTGS as held by the assessee.
• The assessee preferred an appeal before the CIT(A), which was dismissed by the authority stating that the assessee took the entire purchase value for Capital Gain computation instead of taking the proportionate value of purchase consideration. The assessee filed an appeal before the present tribunal after being aggrieved by the said order.

Grounds of Appeal

The learned NFAC was wrong in denying the benefit of indexation on the cost to the appellant by observing the capital gains earned by the appellant through the transfer to be short-term capital gains rather than long-term capital gains.

The Appellant prayed for leave for addition, amendment, alteration or deletion of any or all the aforementioned grounds of appeal. 

Issue

Whether the date of provisional allotment of the property relevant for availing indexation benefit? 

Submissions of the Assessee

The AR of the assessee, while making the submissions, highlighted the relevant facts from the order of the CIT (A) and AO and submitted that, undoubtedly, the sale agreement was made on 19.12.2012; however, the right on the property was given in 1998 which was supported by the ledger extract of the company in the books of the property wherein it was clearly mentioned that assessee was provided with a provisional area allotment of 900 sq. ft and the clear details of the amt collected by them from 31st August 1999 onwards and also it clearly showed office number as BC4021.

Further, regarding the lease deed registered with MMRDA on 31.03.2010, the AR made the submission that it was merely a renewal of the lease deed and the relevant fact is that the actual allotment of office premises to the assessee which the property allotted the same in the year 1999 and the assessee had the right of occupation from the date of that allotment, and the final sanction of occupation of the area as allotment of shares took place after the same.  

The right of the assessee must be calculated from the date it held the provisional allotment is relevant as per the facts and circumstances of the case. In respect of the same, the assessee cited the case of M/s. Suresh Brothers v. ACIT that decided the issue, favouring the assessee wherein the present assessee pointed out Para No. 10 of the order along with the of the Coordinate Bench in the case titled Anita D. Kanjani v. ACIT dated 13.02.2017.

Submissions of the Respondent

The respondent submitted that the assessee had occupied the area and sold the saleable area of 892 sq. ft, whereas the ledger extract that the assessee submitted shows the area as 900 sq. ft. Page No. 16 of the Paper Book was referred to by the respondent relying on the findings of the lower authorities.

The AR filed a rejoinder in this regard, submitting that the area declared in the ledger extract from the property is merely the provisional allotment and not the final allotment.

Judgement

The tribunal discussed the case of M/s. Suresh Brothers v. ACIT as it dealt with identical facts that were being discussed in the present case

While deciding upon the claim of the revenue regarding the dt. Of acquiring the occupancy rights in the property being calculated from 02.08.2010, i.e. the date occupation rights were given to the assessee, vide a registered document, the tribunal relooked into the contention of the revenue regarding Bharat Diamond Bourse acquiring the leasehold rights from MMRDA^[1] on 31st March 2012 therefore, the dt. Of acquiring n of the occupancy rights in the said property couldn’t be related to a date before the same and disagreed with the same observing that even though the lease deed was registered on March 31 2010, the construction of the said property was in progress much before that date.

Regarding the contention of the AO in respect of the equity shares and occupancy rights of the property being in August 2010, therefore, the right of acquisition in the property being bestowed on the assessee only from the said date, the tribunal opined against the AO’s contention observing that for the purpose of determining the holding period of the premises, the date when the valid title of the property was provided the assessee would not be relevant.

The valid title towards the aforesaid property was given to the company based on the registered document dated 2nd August 2010; however, it would not be conclusive to determine the holding period of the property 

based on the aforesaid observations; the tribunal did not subscribe to the claim of the revenue regarding the acquisition of the property under consideration to be calculated from 2nd August 2010 based on a regd. document and equity shares had been allotted in its favour.

The final and binding allotment was done by the lottery system, and the assessee, through an allotment letter dated 3rd December 1999, was allotted the said property u, i.e. Office in Bharat Diamond Bourse. Therefore, it can be concluded that a right towards the aforesaid property was provided assessee from the said date. Also, the assessee, as of the date of allotment, had parted with a significant portion of payment for the cost of acquisition of the property 

Based on the aforesaid deliberations, the tribunal was of the opinion that the case of the assessee was not different from the aforesaid concern, thereby concluding that according to the binding and final allotment of the office premises on 3rd December 1999, the assessee got the ownership of the rights of the property. 

Conclusion

The tribunal respectfully followed the decision of, of M/s. Suresh Brothers v. ACIT, due to the similar issue and identical facts and held that the property’s acquisition date was to be calculated from the allotment date, i.e. in the F.Y. 1998-99, thereby allowing the ground raised by the assessee.

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