Price Paid By Donor As Well As Holding Period Of Previous Owner Is Required For Purpose Of Computing Capital Gain In Case Of 'Gift': Delhi ITAT

The ITAT while holding so, accepted the submissions of assessee that where an asset is acquired by gift, the period of long-term capital asset shall be reckoned from the date when the previous owner acquired such asset and the indexation shall be allowed accordingly from the year of acquisition by the previous owner.

The Division Bench of G.S. Pannu (Vice President) and Anubhav Sharma (Judicial Member) observed that “the CIT(A) had fallen in error in considering the acquisition of flat T10-412 as an exchange without appreciating that for a transaction to fall into the category of exchange, there should be in existence properties which is not established and further builder-buyer agreement specifically mentions that due to change in the area and location, the consideration amount is increased and the amount already paid for erstwhile units were adjusted”. (Para 14)

Facts of the case:

The assessee, a resident of USA, filed his return claiming refund of Rs.58,57,820/-. During assessment year, the assessee had sold two properties for consideration of Rs.1,95,00,0000/- and Rs.72,36,552/- respectively. The assessment was completed whereby the long-term capital loss (LTCL) declared by the Assessee amounting to Rs.70,19,601 was recomputed as short-term capital gain of Rs.1,22,72,900, thereby assessing the income at Rs.1,75,18,505. In computing the same, the AO did not allow credit of certain payment towards cost of acquisition and considered the sale value as Fair Market Value (FMV) computed by the DVO instead of the actual consideration received by the appellant. On appeal, the CIT(A) granted partial relief to the Assessee in terms of allowing the benefit of payments not considered by the AO towards cost of acquisition as well considering the actual sale value instead of the FMV (since the sale consideration was as per the stamp duty value and also the variation with FMV was less than 10%). However, the CIT (A) upheld the action of the AO in treating the LTCL as STCG.

Observation by the Tribunal:

Placing reliance on Section Sec 49(1), the Bench observed that the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it.

Also, in case of gift, the price paid by the donor as well as the holding period of the previous owner is, considered for the purpose of computing the capital gain, added the Bench.

The Bench noted that the transaction of gift is not regarded as transfer and accordingly capital gain arising from such transfer is not made chargeable to tax u/s 45.

However, the capital gain by implication is brought to tax at second stage when capital asset becoming the property of the assessee under gift is subsequently transferred by him by adopting the date and cost of acquisition of the capital asset of the previous owner as the date and cost of acquisition of the assessee, observed the Bench.

The Bench added that under similar circumstances, Special Bench of Mumbai in the case of DCIT Vs. Manjula J. Shah [318 ITR (AT) 417], has held that for the purpose of calculation of indexed cost, the index cost will be taken from the previous year in which the previous owner had become the owner of the property.

While referring to the agreement by which the builder PureEarth Infurastructure along with promoter Basant Projects Ltd., had entered into agreement to sell, the Bench found that consequent to a settlement agreement executed between DCM, PureEarth and Flat owner association before the Delhi High Court, Pureearth had acquired development rights and Pureearth had further entered into a joint development agreement with Basant Projects Ltd. and DCM for development and construction of the said land.

The agreement has reference to earlier allotted apartments which meant 'the booking of space or area or unit or apartment already made to old flat buyers through erstwhile builders, DCM and Pureearth in the project', added the Bench while pointing that the amount of Rs.40,36,702/- already paid were adjusted as a consideration.

The Bench added that PureEarth, being a successor in interest of Ansal-DCM properties and the builder-buyer agreement was not a fresh agreement of allotment or an exchange deed, but, the assessee as a vendee and the PureEarth and Basant as promoters had only redefined and fortified their respective rights and corresponding liabilities, arising from the booking of a flat initiated with Ansal-DCM properties in the year 1989.

Hence, the Bench was of the view that date of acquisition of property has to be reckoned from the date of allotment by Ansal-DCM properties in the year 1989, and the tax authorities have fallen in error in considering the income as short-term capital gain.

Therefore, the ITAT allowed the appeal of the assessee.

Counsel for Appellant: Chinu Bhasin and Sagar Rajpoot,

Counsel for Respondent: Vizay B. Vasanta

Case Title: Ashish verses ACIT

Case Number: ITA No.2145/Del/2023

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