Citation: – Commissioner of Income Tax Vs ITO (Delhi High Court),
ITA No. 70/2015, Date of Pronouncement 09.02.2015
Brief Facts
1. The assessee reported sales of two capital assets in the
form of half shares in a residential property in Marine Drive, Mumbai and half
share in a Kashmere Gate, property. The assessee claimed that a sum of Rs.
73,27,000/- was used to acquire another property within a period stipulated in
Section 54. It also claimed, inter alia, that a sum of Rs 25,14,700/- was spent
towards cost of improvement.
2. The Assessing Officer rejected the assessee’s contention
and held that in the absence of an agreement to sell, the rights acquired by
the provisional booking of the property did not meet with the requirements
spelt out under Section 54, i.e. acquisition of new capital asset. The AO also
held that the improved cost was not deductible.
Question / Issue
Whether the amounts spent by the assessee were towards
acquisition of a capital asset, during the relevant year, and that the amount
spent towards improvements was deductible particularly in view that only
provisional letter of allotment has been issued to the assessee and there is no
agreement to sell.
Revenue contention
The AO’s position with respect to acquisition of a new
capital asset was correct. And ITAT’s reliance on CIT vs. R.L. Sood (2000)
245 ITR 727 and the ruling in Suraj Lamps and Industries Pvt. Ltd. vs. State
of Haryana and Anr. 340 ITR 1, has arisen the issue of acquisition of
capital assets as follow:
“7. . We have heard rival contentions and perused the
material available on record. Reliance placed on the case law by ld. DR does
not support the cause of the revenue. Hon’ble Delhi High Court judgment in the
case of R.L. Sood (supra), wherein the investment in flat irrespective of the delivery
of possession by builder has been held to be investment in purchase or
construction of new flat is applicable to assessee’s case. In view of CBDT
Circulars (supra), clarifying the proposition, also ground no. 1 taken by the
revenue is dismissed.”
It is urged that the ITAT fell into error since the cost of
improvement was incorrectly allowed.
High Court held that
This Court, in the decision reported as Sh. Gulshan Malik vs.
Commissioner of Income Tax (ITA No.55/2014, decided on 14.03.2014) had the
occasion to, inter alia, consider what amounted to acquisition of a capital
asset – though in the context of a claim that capital gains had accrued due to
the sale of the property. The facts in that case were that the assessee had
booked a flat, and was recipient of a provisional allotment letter. The Court
held importantly that even booking rights or rights to purchase the apartment
or to obtain its letter was also capital asset and has categorised the same
as under :
“7. It is clear that a “capital asset” under the Act is
property of “any kind” that is “held” by the assessee. Necessarily, a capital
asset must be transferable. Thus, to understand what kind of property can be
considered a capital asset, it would be apposite to refer to the definition of
transfer in Section 2(47) of the Act. Section 2(47)(v) and (vi), and
Explanation 2 make it adequately clear that possession, enjoyment of immovable
property, as well as an interest in any asset are all transferable “capital
assets”. The reference to acquisition “by way of any agreement or any
arrangement or in any other manner whatsoever” establishes that it is not
conveyance of property or the doctrine of part performance (enacted through
Section 53A of the Transfer of Property Act) which result in enforceable
rights, for the purposes of the Income Tax. The scheme of the Act puts it
beyond doubt that even rights or interests in a property are kinds of property
that are transferable capital assets. Thus, there is no doubt that booking
rights or rights to purchase the apartment or rights to obtain title to the
apartment are also capital assets that can be transferable.”
In the light of the definitions of “capital asset” under
Section 2(14) and “transfer” under Section 2(47) as discussed in Gulshan
(supra), this Court has no doubt that the assessee’s contentions were merited.
So far as the second issue is concerned, i.e. whether
improved cost was deducted, this Court has no manner of doubt that the Revenue
does not dispute the acquisition of second property at Model Town. Given that
the Revenue does not dispute that the second transaction of purchase took
place, it has to necessarily follow that the cost of improvement was
deductible. No substantial question of law arises on that score too.
Hence, revenue appeal is dismissed.
Analysed by CA Rahul Sureka
Direct Link to download full text of the High Court
Judgment from official website
http://lobis.nic.in/dhc/RKG/judgement/12-02-2015/RKG09022015ITA702015.pdf
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