INCOME TAX ACT, 1961

Sections 2(42A), 45

Capital gains - Long-term or short-term - Assessee having possessory rights -

Assessee, on 6-4-1993 entered into agreement for sale for purchase of a piece of land, wherein assessee was already tenant. Assessee was having exclusive possession of said property. As per agreement to sale dated 6-4-1993, assessee agreed to purchase property at the total consideration of Rs. 80 lakhs from two co-owners, i.e., at Rs. 40 lakhs each, out of which Rs.10 lakhs each was paid to both the owners by the assessee. In the agreement to sale deed 06-4-1993 seller admitted possession of assessee. The assessee sold the said property to M/s. 'J' on 8-5-2007. The purchaser M/s. 'J' desire to get the transfer of clear title in their favour. After prolong discussion original owner/lesser of property agreed to execute conveyance deed in favour of purchaser. Since assessee occupying the property and having agreement, signed the conveyance deed as a confirming party. Assessee also paid remaining sale consideration which was payable to original owner as per agreement dated 6-4-1993. The assessee being a confirming party received consideration of Rs. 2 Crores which was offered for taxation as long-term capital gain. AO held that possession could be said to be handed over only on payments of alleged balance payments as mentioned in conveyance deed and, therefore, profit was taxable as short term capital gain. Held: Assessee was in possession of concerned property much prior to execution of agreement to sale. The fact that assessee was in possession of property was clearly mentioned in the agreement, though, it was possessed (occupied) as a tenant. Further, Conveyance deed dated 08-5-2007 nowhere stipulated that after the agreement dated 6-4-1993, assessee was occupying the property as a tenant. In clause 12 of Conveyance deed it was clearly mentioned that under lease dated 16-9-1975, assessee had constructed a Factory Building and started business activity. Further there was no averment in the Conveyance deed that assessee was making any periodical payments as a tenant or in default of the conditions of agreements, status of assessee was treated as tenant, once seller had accepted that assessee was holding possession of property, and there was no stipulation in the Conveyance deed that possession of property was ever surrendered to the owner, the possession could not be said to have handed over only on payments of alleged balance payments as mentioned in Conveyance deed. Accordingly, assessee possessed property since long and not from the date of making balance payment in the year 2005 and, therefore, assessee occupying the asset for more than qualifying period of 36 months on assigning the right in property, gain earned certainly qualified as LTCG.

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