Gulshan Malik v CIT (IT APPEAL NO. 55 OF 2014 dated 14.03.2014) – Delhi High Court

Background:

The assessee and his wife had booked an apartment vide an application dated 31.07.2004, by payment of a booking amount of Rs. 2,00,000/-on 3.08.2004 and consequently, it is claimed, acquired rights or interests in the same. The builder DLF issued a letter dated 6.08.2004 provisionally allotting the apartment and two parking spaces. A buyer’s agreement was executed on 4.11.2004 between DLF and the allottees. Per the payment schedule, a total payment of Rs. 87,12,500/- was made from 31.07.2004 to 03.08.2006 towards the purchase of the apartment. Following this, the Assessee entered into an agreement to sell dated 2.11.2007 to sell their booking rights/rights or interest in the apartment.

In the computation of income, the assessee declared a long term capital gain of Rs. 31,35,740/- on the sale of booking rights/extinguishment of rights in the apartment (period between acquisition and sale of the booking rights in the apartment was claimed to be 39 months and 2 days). An exemption was claimed under Section 54 of the Act, 1961 as the same was invested in purchase of another apartment in June 2008.

The AO treated the transfer as a short term capital gain and consequently, no deduction under Section 54 was allowed since it is available only in respect of long-term capital gains. The appeal against the order of the AO before CIT(A) was dismissed 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. The assessee’s second appeal before the ITAT was also dismissed 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. 

Assessee’s contentions:

• 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.
  
• Reliance is placed on CIT 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.

HELD:

• A “capital asset” under the Act is property of “any kind” that is “held” by the assessee. Necessarily, a capital asset must be transferable.
  
• 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.
• 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. 
• 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 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. 
• Thus, date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004
• 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.