In a recent ruling by the Income Tax Appellate Tribunal, Delhi Bench, a significant decision was made regarding the computation of long-term capital gains and the eligibility for deduction based on the indexed cost of acquisition. Let’s delve into the details of this case:
Case Overview: The case, with the identifier ITA No.1368/Del/2022, pertained to the assessment year 2019-20 and involved Ms. Renu Khurana, a non-resident individual, and the Assistant Commissioner of Income Tax, International Taxation -2(1)(2), New Delhi.
Background: The individual involved in this case is a NRI. During the relevant financial year for the assessment under dispute, the NRI sold a residential property identified as flat no. A-501, located in Park View SPA, Village Fatehpur, Sector-47, Gurgaon, Haryana. The transaction was formalized through a registered sale deed dated 29.03.2019, with a consideration of Rs.2,10,00,000/-. Following the sale, the individual claimed deductions for the indexed cost of acquisition under section 48 of the Income-tax Act, 1961, amounting to Rs.2,09,54,863/-, thereby declaring a long-term capital gain of Rs.45,137/- in the income tax return for the relevant assessment year.
However, the Assessing Officer, during the assessment proceedings under section 144 of the Act, exercised judgment and rejected the individual’s claim for the deduction of indexed cost of acquisition. Instead, the Assessing Officer allowed only 1/4th of the sale consideration as a deduction towards indexed cost of acquisition, based on an estimated assessment. Subsequently, the individual raised objections before the Dispute Resolution Panel (DRP) against the draft assessment order.
During the proceedings before the DRP, the individual provided additional evidence regarding payments made for acquiring the property, including agreements with the builder and the sale deed. The DRP forwarded these additional evidences to the Assessing Officer for verification. Upon reviewing the remand report submitted by the Assessing Officer, the DRP concluded that the individual executed the Apartment Buyers Agreement with the builder on 04.08.2010, falling within the financial year 2010-11.
As a result, the DRP determined that the financial year 2010-11 should be considered as the year in which the individual acquired the property. Accordingly, the DRP directed the Assessing Officer to allow deductions towards indexed cost of acquisition for payments made from the financial year 2010-11 onwards. In compliance with the DRP’s directions, the Assessing Officer issued the final assessment order, allowing a deduction of Rs.1,84,03,321/- on account of indexed cost of acquisition. Consequently, the addition on account of long-term capital gain was revised to Rs.25,96,679/-.
Key Points of Contention: During the hearing before the Income Tax Appellate Tribunal, the primary contention revolved around determining the financial year in which the assessee NRI could be said to have acquired the property for the purpose of granting indexation benefits in case of self-financing scheme of property.
Decision and Rationale: After considering the submissions from both sides and examining the evidence on record, the Tribunal made a crucial observation. Tribunal noted that it is very clear that in the allotment letter not only a specifically identifiable residential flat was allotted to the assessee NRI but the assessee NRI had made payments in accordance with the terms and conditions of the allotment letter. In Circular No. 471, dated 15.10.1996, the Central Board of Direct Taxes (CBDT) has clarified that in respect of flats allotted under the self-financing scheme of the Delhi Development Authority (DDA), the date of issuance of allotment letter would be considered to be the date of acquisition of the property. This is so because, the allotment is final unless it is cancelled or the allottee withdraws from the scheme. In case of assessee NRI before us, as well, the allotment letter issued by the developer/builder is final, as, it is in respect of a specifically identifiable property and has ultimately culminated in execution of apartment buyer’s agreement in financial year 2010-11. Therefore, in our view, the date of acquisition of the residential flat has to be reckoned from the date of the allotment letter. While coming to the aforesaid conclusion, we have drawn support from the decisions cited before us by learned counsel appearing for the assessee NRI.
Precedents and Legal Interpretation: Drawing support from relevant legal precedents and Circular No. 471 issued by the Central Board of Direct Taxes, which clarified the date of acquisition in similar cases, the Tribunal concluded that the benefit of indexed cost of acquisition should be available to the assessee NRI based on the payments made beginning from financial year 2005-06 and not from the execution of the apartment buyers’ agreement, as directed by learned DRP.
Order and Implications: The Tribunal directed the Assessing Officer to verify the computation of indexed cost of acquisition based on payments made from the financial year 2005-06 onwards and allow the deduction accordingly. Thus, the appeal was allowed in favor of the assessee NRI.
Judgements Supported:
1. Praveen Gupta Vs. ACIT, ITA No.2558/Del/2010 for AY:2007-08.
2. CIT Vs. Jindas Panchand Gandhi, 279 ITR 552
3. CIT Vs. S.R. Jeyashankar [2015] 373 ITR 120 (Mad.)
4. L. Vivekananda Vs. ACIT [2021] 124 taxmann.com 67 (Bangalore – Trib.)
5. Mrs. Madhu Kaul Vs. CIT, [2014] 363 ITR 54 (P&H)
Conclusion: This landmark decision provides clarity on the treatment of indexed cost of acquisition in cases where properties are allotted under self-financing schemes. It said that the date when the person got the allotment letter for the property is when they officially got it, not when they signed other agreements later on.
It’s important to highlight that when applying for a lower TDS (Tax Deducted at Source) certificate for NRI, if an NRI sells a self-financed property, indexation is typically based on the payments made. This indexation method is commonly accepted by the assessing officer when granting a lower TDS certificate to NRIs in most cases.
