Capital gains : Long-term or short-term : S. 2(29A) r/w S. 54 : DDA allotted a flat to assessee under its scheme on 27-2-1982 : Possession of flat given to assessee on 15-5-1986 when actual flat number was allocated to assessee : Assessee sold said flat o

[Vinod Kumar Jain v. CIT,
195 Taxman 174 (P&H)]

The assessee was allotted a
flat on 27-2-1982 on instalments under residential scheme of the DDA. The
possession of the said flat was, however, given to the assessee on 15-5-1986 and
the letter issued in that behalf indicated the flat number and called upon the
assessee-allottee to deposit the balance amount. The assessee sold the said flat
on 6-1-1989 and claimed that capital gain arising on sale of said flat was
long-term capital gain. The assessee had also claimed exemption u/s.54 on
account of purchase of another flat on 31-1-1989. The Assessing Officer
disallowed the assessee’s claim holding that the possession of the flat was
given to the assessee on 15-5-1986 and, therefore, the capital gain on sale of
the flat in question was short-term capital gain governed by S. 2(42A). The
Tribunal upheld the decision of the AO.

On appeal by the assessee,
the Punjab and Haryana High Court reversed the decision of the Tribunal and held
as under :

“(i) A conjoint reading of
S. 2(14), S. 2(29A) and S. 2(42A) leads to one conclusion that a capital asset
held by the assessee for 36 months would be termed as a long-term capital
asset and any gain arising on account of sale thereof would constitute a
long-term capital gain.

(ii) Circular No. 471,
dated 15-10-1996 issued by the CBDT, on which heavy reliance had been placed
by the assessee, describes the nature of right that an allottee acquires on
allotment of a flat under self-financing scheme. According to it, the allottee
gets title to the property on the issuance of an allotment letter and the
payment of instalments is only a consequential action upon which the delivery
of possession flows.

(iii) The provisions of S.
2(14), S. 2(29A) and S. 2(42A) encompass within their ambit those cases of
capital assets which are held by an assessee. Once that is so, adverting to
the facts of the instant case, the assessee was allotted a flat on 27-2-1982
on payment of instalments by issuance of an allotment letter and he had been
making payment in terms thereof, but the specific number of the flat was
allocated to the assessee and possession delivered on 15-5-1986. The right of
the assessee prior to 15-5-1996 was a right in the property. In such a
situation, it could not be held that prior to the said date, the assessee was
not holding the flat.

(iv) Accordingly, capital
gain arising on sale of flat was a long-term capital gain and the assessee was
entitled to set off the same u/s.54.”