* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18.02.2014
Pronounced on: 14.03.2014
+ ITA 55/2014, C.M. APPL. 2383/2014 & 2384/2014
SH. GULSHAN MALIK .....Appellant
Through: Sh. Prakash Kumar and Sh. Sheel
Vardhan, Advocates.
Versus
COMMISSIONER OF INCOME TAX .....Respondents
Through: Sh. Rohit Madan, Sr. Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S. RAVINDRA BHAT
%
1. This is an appeal filed against the order of the Income Tax
Appellant Tribunal ("ITAT") in ITA No. 161/Del/2012 dated
27.02.2013, which upholds the order of the Commissioner of Income
Tax (Appeals) ("CIT-A") confirming the assessment order of the
Assessing Officer ("AO"). The short question of law that arises is
whether on facts, capital gains are taxable as long-term or short-term
capital gains. The brief facts are as follows:
2. The appellant (the assessee) and his wife had booked an
apartment vide an application dated 31.07.2004, by payment of a
booking amount of ` 2,00,000/-on 3.08.2004 and consequently, it is
claimed, acquired rights or interests in the same. The builder DLF
Universal Limited ("DLF") issued a letter dated 6.08.2004
ITA 55/2014 Page 1
provisionally allotting the apartment and two parking spaces, stating
specifically the receipt of ` 2,00,000/- (Annexure 3). Consequent to
this, regular payments were made per the payment plan of the
builder. A buyer's agreement was executed on 4.11.2004 between
DLF and the allottees i.e. the appellant and his wife. Per the payment
schedule, a total payment of ` 87,12,500/- was made from
31.07.2004 to 03.08.2006 towards the purchase of the apartment.
Following this, the appellant and his wife entered into an agreement
to sell dated 2.11.2007 to sell their booking rights/rights or interest in
the apartment to Smt. Srilekha Nayak for a sum of ` 1,44,87,500/-.
The period between acquisition and sale of the booking rights in the
apartment is claimed to be 39 months and 2 days, thus greater than
36 months, i.e. from 31.07.2004 to 02.11.2007. The appellant
subsequently filed return of income on 31.3.2009 for the assessment
year 2008-2009, with income declared to be ` 3,84,874/-. In the
computation of income, the appellant had declared a long term
capital gain of ` 31,35,740/- on the sale of booking
rights/extinguishment of rights in the apartment. An exemption was
claimed under Section 54 of the Act, 1961 as the same was invested
in purchase of another apartment in June 2008.
3. After the return was processed under Section 143(1) of the Act
and the case was thereafter selected for compulsory scrutiny, an
order of assessment was passed under Section 143(3) of the Act on
30.12.2010 whereby an addition of ` 28,20,000/- was made by the
ITA 55/2014 Page 2
Assessing Officer (AO) to the income declared by the appellant on
account of short-term capital gain. No deduction under Section 54
was allowed since it is available only in respect of long-term capital
gains. The total income was thus assessed to be ` 32,10,145/-. The
appeal against the order of the AO before CIT-A was dismissed by an
order dated 25.11.2011, on the grounds that the rights in the
apartment accrued to the appellant only when the apartment was
purchased by the agreement dated 4.11.2004. It was also noted that
only rights in the property and not title were transferred vide the
agreement of 2.11.2007 as the assessee never had possession of the
apartment. The assessee's second appeal before the ITAT was also
dismissed vide order dated 27.02.2013 on the ground that no rights
in the property accrued to the appellant/allottees on the date of
filing of the application for allotment i.e. 31.7.2004, as notes 1 and 2
enclosed with the confirmation letter dated 06.08.2004 received in
response to the allotment application states clearly that no rights to
the property would accrue to the allottees until the buyer's
agreement was signed and returned; the buyer's agreement was
executed only on 4.11.2004. Consequently, the ITAT found that the
capital asset was sold within a period of 36 months thus rendering
the profits from the sale taxable as short-term capital gains, which do
not qualify for the deduction under Section 54.
4. The question that arises for consideration is whether any right
accrued to the assessee by way of the application for allotment that
ITA 55/2014 Page 3
can be considered a capital asset; this would determine whether the
date of application for allotment of the apartment or the date of the
buyer's agreement ought to be considered the date of acquisition of
the capital asset that was sold on 2.11.2007 as well as whether the
capital gain is taxable as long-term or short-term capital gains.
5. The appellants submit that by way of application dated
31.7.2004 for allotment and payment of the booking amount, the
appellant had acquired the"right to purchase the property"/booking
rights, which were extinguished by execution of the agreement to sell
dated 2.11.2007 in favour of Smt. Srilekha Nayak, thus making his
booking rights a long-term capital asset, held for a period of 39
months and 2 days. Alternatively, the appellant submits placing
reliance on Commissioner of Income Tax v. Ved Parkash and Sons
(HUF), [1994] 207 ITR 148 that rights in the apartment were acquired
on the date of receipt of allotment letter i.e. 6.8.2004, by which the
apartment was provisionally allotted to him, which rights were sold
on 2.11.2007 thus making his right in the apartment a long-term
capital asset. The two grounds for this submission are first, that
Section 2(47) of the Act, which defines "transfer" in relation to a
capital asset, is a wide and inclusive definition that encompasses
even transfer of a right in property, thus including within its ambit,
transfer of booking rights, second, that a combined reading of
Sections 2(14) and 2(47) of the Act show that transfer of a capital
asset is not restricted to transfer of ownership in immovable property
ITA 55/2014 Page 4
alone. The learned counsel for the Revenue, on the other hand, relies
on the order of the learned ITAT member who held that booking
rights accrued in the assessee only once the buyer's agreement of
4.11.2004 was signed, thus making the profits from sale taxable as
short-term capital gains.
6. It would be appropriate to extract Section 2(14), 2(42A), 2(47)
here in relevant part. Section 2 of the Act reads:
"2. In this Act, unless the context otherwise requires,
(14) "capital asset" means property of any kind held by
an assessee, whether or not connected with his business
or profession, but does not include
xxx
(42A) "short-term capital asset" means a capital asset
held by an assessee for not more than thirty-six months
immediately preceding the date of its transfer:
xxx
(47) "transfer", in relation to a capital asset, includes, -
(i) the sale, exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or
(iv) in a case where the asset is converted by the owner
thereof into, or is treated by him as, stock-in-trade of a
business carried on by him, such conversion or treatment
; or
(iva) the maturity or redemption of a zero coupon bond ;
or
ITA 55/2014 Page 5
(v) any transaction involving the allowing of the
possession of any immovable property to be taken or
retained in part performance of a contract of the nature
referred to in section 53A of the Transfer of Property Act,
1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a
member of, or acquiring shares in, a co-operative society,
company or other association of persons or by way of
any agreement or any arrangement or in any other
manner whatsoever) which has the effect of transferring,
or enabling the enjoyment of, any immovable property.
Explanation 1.-- xxx
Explanation 2.--For the removal of doubts, it is hereby
clarified that "transfer" includes and shall be deemed to
have always included disposing of or parting with an
asset or any interest therein, or creating any interest in
any asset in any manner whatsoever, directly or
indirectly, absolutely or conditionally, voluntarily or
involuntarily, by way of an agreement (whether entered
into in India or outside India) or otherwise,
notwithstanding that such transfer of rights has been
characterised as being effected or dependent upon or
flowing from the transfer of a share or shares of a
company registered or incorporated outside India...."
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
ITA 55/2014 Page 6
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.
However, even while this Court agrees with the submissions of the
appellant, it is pertinent to note that this question does not arise in
these facts. Neither the CIT-A nor the ITAT have held that a capital
asset can only be title to/ownership of the apartment. The order of
the CIT-A locates the source of the booking rights i.e. date of
acquisition of capital asset as the buyer's agreement dated
4.11.2004, which finding is subsequently confirmed by the ITAT by
additionally relying on the receipts at the time of confirmation of
allotment. Thus, in these facts, the question of whether the booking
rights are a transferable capital asset is not contentious. The
judgment in Ved Parkash (supra) is also consequently of no assistance
in this matter since the reasoning therein turns on whether "capital
asset" refers only to title to property as opposed to other
rights/interests in the property.
ITA 55/2014 Page 7
8. This being the case, the only question that arises for
consideration is whether the booking rights to the apartment accrued
to the assessee on the date of application for allotment/confirmation
of allotment or on the date of execution of the agreement to sell i.e.
the buyer's agreement. This Court is of the opinion that a right or
interest in an immovable property can accrue only by way of an
agreement embodying consensus ad idem. The nature of the right
sought to be transferred here is the right to purchase the apartment
and obtain title, termed "booking rights". Only that agreement which
intends to convey these rights according to both parties can be
considered as the source of accrual of rights to the assessee. The
confirmation letter dated 6.8.2004 (Annexure 3) specifically states
first, that no right to provisional/final allotment accrues until the
Buyer's Agreement is signed and returned to the builders and second,
that no right to claim title/ownership results from the confirmation
letter itself. Thus, it is clear that the Builders do not intend to convey
any right of provisional/final allotment or any right to claim
title/ownership under the confirmation letter. There being no
intention to convey rights in this document, it would be
impermissible for this Court to find that the right to obtain
title/"booking rights" emanated from the confirmation letter. These
rights may only be located in the Buyer's agreement, and thus, the
date of acquisition of the capital asset must be considered the date of
signing of said agreement i.e. 4.11.2004
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9. These rights were transferred by the assessee on 2.11.2007.
Thus, this Court is of the opinion that the capital asset in the form of
these rights was held for a period of 35 months and 28 days, i.e. a
short-term capital asset thus rendering the profits from the transfer
of this capital asset taxable as short-term capital gains.
10. Ved Parkash (supra), in any event, can be distinguished from
the facts in this case. In Ved Parkash (supra), the assessee sought to
claim that the date of acquisition of the capital asset was the date of
entering into the agreement to sell with the builder, by which the
assessee had also received possession of the property. The
Department, on the other hand, claimed that according to the
conditions of the agreement, no right, title or interest in the property
would be conveyed to the assessee until all instalments due and
payable under that agreement were completed. It was also sought to
be argued that the assessee became the titleholder to the property
only once all the instalments were paid, and that title to the property
was the only capital asset that could be transferred. It was in the
context of these arguments that the Court held first,that it is
incorrect to say that the assessee had no right or interest in the
property until the completion of payment of all instalments under the
agreement as the assessee was a beneficial owner from the date of
signing the agreement, having been put in possession of the property
as of that date and second, that Section 2(42A) of the Act, in any
event only uses the term "held" and not "owned", thus indicating
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that a capital asset need not only refer to full title over any property.
Ved Parkash (supra) can thus be distinguished on two grounds, first,
that in the instant matter, booking rights are sought to be sourced in
the allotment application/confirmation letter and not in an
agreement to sell, second, no right of possession or similar beneficial
interest was conveyed to the assessee in the instant case when the
application for allotment was made/confirmation letter was received.
The agreement to sell was considered to be the source of a beneficial
interest to the assessee in Ved Parkash (supra) only because the right
of possession had been transferred to the assessee along with the
agreement to sell.There cannot be any parity between the allotment
application/confirmation letter in the instant case and the agreement
to sell in Ved Parkash (supra), since the confirmation letter
specifically states that no right of provisional allotment/final
allotment will result from it to the assessee.
11. This Court is thus of the opinion that there is no legal infirmity
in the order of the ITAT. The appeal is thus dismissed along with
pending applications.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
MARCH 14, 2014
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