Income Tax Appellate Tribunal - Delhi
H.G. Malik vs Assistant Commissioner Of Income Tax on 22 November, 2002
Equivalent citations: [2003]85ITD79(DELHI), (2003)79TTJ(DELHI)844
ORDER
R.M. Mehta, Vice President
1. The following grounds are raised in this appeal directed against the order passed by the CIT(A) ;
"1. That on facts and in circumstances of the case, the declared loss of Rs. 16,695 under the head long-term capital gain arising on the sale of rights in DDA flat, ought to have been accepted and allowed as deduction.
2. That the authorities below, on facts, in law and on the grounds taken and basis adopted, went wrong to hold that the sale of rights in the DDA flat resulted in income under the head short-term capital gain as against income under the head long-term capital gain as claimed. The adverse finding, based on the erroneous view of the factual and legal position, deserves to be quashed.
3. That the determination of income under the head short-term capital gain at Rs. 49,235 deserves to be quashed and deleted and the declared loss of Rs. 16,695 under the head long-term capital gain deserves to be accepted and allowed as deduction."
2. We have heard both the parties and have also perused the orders passed by the tax authorities. The only issue to be decided in this appeal is whether the gain, which arose to the assessee during the assessment year under consideration on the sale of the right to acquire a flat from DDA was long-term as contended by the assessee or the view taken by the tax authorities to treat the same as a short-term capital gain was the correct one on facts and in law.
3. The brief facts are that the assessee got himself registered in 1981 under the IVth self-financing scheme by depositing a sum of Rs. 15,000 with the DDA. By virtue of a draw held on 13th Nov., 1990, the assessee was declared successful and intimation was sent to him by the DDA vide communication dt. 26th Nov., 1990--30th Nov., 1990. A copy of the allotment letter is placed at p. 15 of the assessee's paper book and this not only indicates the locality in which the flat has been allotted, the category thereof as also the estimated cost and the schedule of payments.
4. During the year under consideration, the assessee had disposed off/sold the right to acquire the said flat to one Shri R.P. Gupta for a consideration of Rs. 2,75,000 and treating the same as long-term capital gain, it worked out a net capital loss of Rs. 16,695. The AO, however, treated the capital gain to be a short-term one as according to him the registration in 1981 with the DDA by paying Rs. 15,000 did not give the assessee a right to allotment since such a right crystallized only when there was an allotment by a draw. According to the AO, the registration did not create a right but the same came into existence when the DDA confirmed that the assessee became an allottee by virtue of a draw.
5. It was also noted as a fact by the AO that no payment had been made to the DDA between the date of registration and the date of allotment whereas one instalment was paid by the assessee after the allotment had been made but he chose not to retain the property and disposed it of, The AO in fact asked the assessee to seek a clarification from the DDA in support of his arguments, which the assessee did not.
6. To support his viewpoint, the AO referred to Circular No. 520 issued by the GBDT, dt. 11th Aug., 1988, which categorically stated that the title to property crystallized only on the issue of a allotment letter.
7. On the aforesaid facts, the AO proceeded to tax the entire sale proceeds of Rs. 2,75,000 as short-term capital gain. It is a matter of record that subsequently by an order under Section 154, the said gain was reduced to Rs. 49,235.
8. Being aggrieved, the assessee filed an appeal to the CIT(A), who upheld the view taken by theAO as follows :
"I have considered the order of the AO and submissions of the learned counsel. It would be seen from the facts above that the appellant was allotted the flat by draw dt. 13th Nov., 1990, vide intimation letter dt. 26th Nov., 1990-30th Nov., 1990. Hence, appellant's interest/right to obtain the flat came into existence from November, 1990. The appellant had filed an application for registration under the aforesaid scheme of DDA on 24th Feb., 1981. This application did not give any right of allotment of flat to the appellant because allotment of flat was dependent on the draw to be held subsequently. It means only a lucky few were to get the allotment and not all who had applied for registration or got registered under the scheme by making a payment of Rs. 15,000. Thus, on registration under the scheme no right at all concerning the flat was conferred on the appellant or other applicants under the said scheme. In view of this the sale of the right in the year under consideration was a short-term capital gain as held by the AO. The appellant's' reliance on the case laws (supra) is of no help to the appellant, as the flats in those cases were not obtained by the persons concerned under Self-Financing Scheme of DDA and the flats in such cases were not dependent on draw to be held subsequently. In the said cases the appellant were assured of flats by the builders, etc. on booking, In view of this the determination of short-term capital gain by the AO at Rs. 49,235 is upheld."
9. Before us, the learned counsel for the appellant has reiterated the arguments advanced before the tax authorities. Much stress has been laid on the argument that the right to the property was acquired at the time of registration in 1981 and since the sale took place in asst. yr. 1993-94, the gain was a long-term one and the loss returned at Rs. 16,695 be accepted. In support of his arguments, the learned counsel placed reliance on the following decisions :
1. CIT v. Tata Services Ltd. (1980) 122 ITR 594 (Bom)
2. ITO v. Smt Kashmiraben M. Parikh (1992) 44 TTJ (Ahd) 68
3. Jagdish Chander Malhotra v. ITO (1998) 62 TTJ (Del) 314.
10. The learned Departmental Representative on the other hand supported the orders passed by the tax authorities and subsequent arguments advanced by him were a reiteration of the reasons recorded by the said authorities in rejecting the assessee's claim.
11. After examining the rival contentions, we are of the view that there is no merit whatsoever in the arguments advanced before us by the assessee. As rightly held by the tax authorities, the registration under the scheme in 1981 gave only a right to participate in a draw of flats to be held by the DDA on a future and uncertain date and it did not vest in the assessee a right to any specific flat/property. It was not incumbent on the part of the person who was registered with the DDA to apply for a flat in a particular scheme and the amount deposited could also be withdrawn under prescribed conditions as per the terms of the scheme itself. Under the aforesaid conditions, it cannot be said that the assessee acquired any right in the property in question as far back as 1981 and in our opinion that tax authorities were right in taking a view that such a right came into force only after the assessee had made an application for being considered for allotment of a flat and on the basis of the draw held on 30th Nov., 1990, he was allotted a flat vide allotment letter placed at p. 15 of the paper book. It is interesting to note that whereas the locality, category, floor as well as the estimated cost and the specific pocket and block is mentioned, the flat is not identified. It appears that even after this allotment letter, a separate draw is held for allotment of a specific identified flat.
12. Coming to the decisions relied upon, in the case of Tata Services Ltd. (supra), the assessee had entered into an agreement for purchasing 5000 sq. yds. out of a larger plot measuring 7012 sq. yds. in Bombay at Rs. 75 per sq, yd. paying Rs. 90,000 as earnest money. The purchase was to be completed within six months and the vendor was to obtain at his cost necessary permission from the municipal or other public authorities for the sub-division of the main plot and if the permission was not obtained on any account whatsoever, the vendor was entitled to cancel the agreement upon which the earnest money deposited was to be refunded. Subsequently, the vendor wanted to cancel the agreement on the ground that the sub-division of the plot had not been granted by the municipal corporation but this was not accepted by the assessee. Ultimately, under a tripartite agreement between the assessee and two others, the assessee transferred and assigned in favour of one of the parties, its right, title and interest under the agreement and received a sum of Rs. 5.90 lakhs, out of which Rs. 5,00,000 was the consideration for the transfer and assignment of assessee's right, title and interest under the agreement and Rs. 90,000 was the earnest money earlier deposited by the assessee. The ITO treated it as a transaction attracting capital gains. On a reference to the Hon'ble Bombay High Court at the instance of the Revenue, their Lordships took the view that under the tripartite agreement, the assessee was to transfer and assign in favour of one of the parties the right, title and interest, which the assessee had under the agreement entered into with another party. This right, according to their Lordships, clearly fell within the definition of a "capital asset" within the meaning of Section 2(14) of the IT Act, 1961. We need not go to the rest of the facts of the case since a perusal of the questions posed before their Lordships and appearing at p. 598 of the report indicate that the main issue was whether the transfer was one of a "capital asset" giving rise to capital gains whereas in the present appeal before us, this is not the dispute as it is only to be decided whether it is the case of a long-term capital gain or a short-term capital gain. This decision, therefore, would not apply.
13. In the decision of the Ahmedabad Bench of the Tribunal in the case of Smt. Kashmiraben M. Parikh (supra) the assessee had booked a flat in November, 1978, by depositing a sum of Rs. 1,000 with the builder. The construction was completed in January, 1981 and the possession was handed over in February, 1981. The flat was transferred in November, 1983 and on the facts of the case, the Tribunal took the view that since the right in the flat was admittedly acquired at the time of booking i.e., November, 1978, the right in the property was more than three years before its transfer and, therefore, capital gains, which arose were long-term. This decision also would not help the assessee since the view about the point of time at which the right arose was expressed, considering the total facts, from the date of booking, transfer of the flat to the assessee, date of actual possession and its subsequent disposal. In the present case, it is a matter of record and not disputed that the assessee never came into the possession of the flat but merely disposed of the allotment after paying one instalment. That apart, booking of a flat with a private builder cannot be treated on the same footing as the registration amount paid to the DDA since the latter is subject to a subsequent draw where the assessee may be successful or not. In the case of a private builder, the right of allotment and other connected procedures are definite, known and ascertained at the time of booking itself.
14. To the same effect are our observations in respect of the other decision cited by the learned counsel viz., Jagdish Chancier Malhotta's case (supra) since this also pertained to the booking of a flat and although complete facts are not indicated as we have been provided only with the conclusions, it appears to be the case of a booking with a private builder and not a Government authority such as the DDA.
15. In the final analysis, we uphold the action of the tax authorities in treating the capital gain as short-term. The declared loss of Rs. 16,695 would, therefore, stand rejected.
16. Before we move to an additional ground raised by the assessee during the course of hearing, we would like to deal with certain other decisions relied upon by the learned counsel and these are :
1. CIT v. T.C. Itty Ipe (2001) 249 ITR 591 (Mad)
2. Hardiallia Chemicals Ltd. v. CIT (1996) 218 ITR 598 (Bom)
3. CIT v. Abrar Alvi (2001) 247 ITR 312 (Bom)
4. CIT v. Shakuntala Kantilal (1991) 190 ITR 56 (Bom)
17. We have minutely gone through the aforesaid judgments and we really wonder as to how these would help the assessee on the facts of the present case and the proposition of law, which he is seeking to canvass. In the judgment of the Hon'ble Madras High Court in the case of T.C. Itty Ipe (supra) the sale was of land and superstructure and their Lordships took the view that these could be treated as two different assets and the view of the Tribunal in treating a part of the sale consideration as long-term capital gain and the other part as short-term capital gain was confirmed. In the present case there are no two rights since it is only one right, which has been disposed of in asst. yr. 1993-94 and which we have already held as giving rise to short-term capital gain. The registration made with the DDA in 1981 cannot be treated as a capital asset.
18. The other three decisions also pertained to different issues and having been rendered on their own facts, are not found to be applicable.
19. Coming to the additional ground raised, this reads as under :
"That there was no warrant to levy interest under Section 234 of the IT Act. The levy of interest under Section 234B and 234C being illegal, without jurisdiction and in violation of the principles of natural justice, deserves to be quashed and deleted."
20. After hearing both the parties, the said additional ground is admitted being a legal one. The argument of the learned counsel was that in the assessment order no direction had been given for charging interest, under the relevent sections and considering the judgment of the Hon'ble Supreme Court in the case of CIT v. Ranchi Club Ltd, the Tribunal be pleased to quash the levy as against the decision of the CIT(A) to direct consequential relief only. The learned Departmental Representative supported the orders passed by the tax authorities.
21. After considering rival submissions, we are of the view that the point at issue is squarely covered by the judgment of the Hon'ble Supreme Court in the case of Ranchi Club Ltd. (supra) and which in turn upholds the decisions of the Hon'ble Patna High Court in Ranchi Club Ltd. v. CIT and Ors. (1996) 217 ITR 72 (Pat) and Uday Mistanna Bhandar & Complex v. CIT and Ors. (1997) 222 ITR 44 (Pat). A Full bench of the Hon'ble Patna High Court has reiterated the view taken by the Division Benches in the decision in Smt. Tej Kumari v. CIT and Ors. (2001) 247 ITR 210 (Pat)(FB).
22. It may be relevant to mention at this stage that the Hon'ble Delhi High Court in recent decisions has taken the same view and one such unreported judgment is that of CIT v. Gold Tex Furnishing Industries, in ITA No. 80 of 2002 dt. 21st Aug., 2002. Respectfully following the aforesiad decision, we quash the levy of interest under Sections 234B and 234C.
23. In the result, the appeal is partly allowed.