Decided on July 20,1982



B.L. Shelar, Judicial Member - (1.) THIS is an assessee's appeal preferred against the order of the AAC and two grounds are raised: (7) that the AAC erred in rejecting the claim of the assessee under Section 54(1) of the Income-tax Act, 1961 ('the Act'), and that the benefits of Section 54(1) are available to a HUF also, and (2) that the AAC erred in holding that the capital gain arising on transfer of bungalow is a short-term capital gain.
(2.) The facts of the case lie in a narrow compass but raise interesting issues. The facts are as under. The assessee is a HUF. It purchased land in 1966 for Rs. 36,620 (cost of land at Rs. 35,000 and stamp duty, etc., at Rs. 1,620). The land is situated at survey No. 121/3, Prabhat Road, Pune. The assessee started construction on it and the same was completed some time in February, 1973. The assessee disclosed the cost of construction at Rs. 1,61,409. The assessee HUF occupied the bungalow for residence up to 16-10-1975 on which date it was sold by the assessee to Shri S.P. Mantri through minor guardian father Shri Pandurang Jivraj Mantri and the consideration was Rs. 2,91,000. As per-the sale deed, the assessee HUF earned a surplus profit of Rs. 93,371. The assessee also incurred expenditure of Rs. 3,260 as commission and pleader's fees, etc., and the net gain was Rs. 90,111. The assessee later on purchased a flat in a co-operative society on 1-4-1976 for Rs. 77,782 for residence within one year from the date of sale of the property. The assessee claimed that the surplus obtained is a long-term capital gain since the asset was sold in 1975 was purchased or acquired in 1966 and the asset was held by the assessee for a period exceeding 60 months. Hence., the assessee is entitled to claim deduction under Section 80T of the Act, from the total income in respect of long-term capital gain. The assessee also claimed deduction under Section 54(1) of Rs. 77,782 representing investment in the new flat and deduction under Section 80T of Rs. 6,832 was claimed and on long-term capital gain was computed at Rs. 12,329. The ITO considered the assessee's claim and went through the material on record and according to him there were two issues involved for consideration, namely, whether the surplus obtained by the assessee should be taxed as long-term capital gain or short-term capital gain and whether the provisions of Section 54(1) are applicable to the facts of the case. It may be mentioned that the assessee had by its letter requested the ITO that capital gain should be taxed for the assessment year 1977-78.
(3.) THE ITO in para 10 of his order held that the assessee's contention that the gains represented long-term capital gains was not acceptable as according to the ITO the asset which was transferred in 1975 was not acquired in 1966. He was of the opinion that the asset which was transferred in 1975 was an asset which was not at all in existence in that form, namely, the bungalow, in 1966 and that the bungalow only took its shape in 1973. He was further of the opinion that the asset was a composite one and the assessee also sold it as a composite one and, therefore, it was the case of short-term capital gain arising out of sale. Thus according to the ITO the transfer having taken place within 36 months, the surplus of Rs. 90,111 was liable to be taxed as short-term capital gain.;

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