Whether booking rights or right to purchase apartment is also a transferable capital asset - YES: Delhi HC

THE issues before the Bench are - Whether booking rights or rights to purchase the apartment or rights to obtain title to the apartment are also capital assets that is transferable; Whether the booking rights to a property sold can accrue to the assessee on the date of application for allotment/confirmation of allotment; Whether in case there is no intention of the builder of the property to convey any rights to the assessee, it can be assumed that "booking rights" emanated from the confirmation letter given by the said builder and Whether in such case the date of execution of the agreement to sell by the assessee to a subsequent buyer would be considered as the date of transfer of "Booking Rights". And the verdict goes against the assessee.

Facts of the case

The assessee is an invidual. He alongwith his wife had booked an apartment, by payment of a booking amount of Rs. 2,00,000/-on 3.08.2004 and consequently, it was claimed, acquired rights or interests in the same. The builder DLF Universal Limited (“DLF”) issued a letter dated 6.08.2004 provisionally allotting the apartment and two parking spaces, stating specifically the receipt of Rs. 2,00,000/-. Consequent to this, regular payments were made per the payment plan of the builder. A buyer’s agreement was executed on 4.11.2004 between DLF and the allottees. As per the payment schedule, a total payment of Rs. 87,12,500/- was made towards the purchase of apartment. Following this, the appellant and his wife entered into an agreement to sell dated 2.11.2007 to sell their booking rights/rights or interest in the apartment for a sum of Rs. 1,44,87,500/-. The period between acquisition and sale of the booking rights in the apartment was claimed to be 39 months and 2 days, thus greater than 36 months, i.e. from 31.07.2004 to 02.11.2007. The assessee subsequently filed return of income on 31.3.2009 for the AY 2008-2009, with income declared to be Rs. 3,84,874/-. In the computation of income, it had declared a LTCG of Rs. 31,35,740/- on the sale of booking rights/extinguishment of rights in the apartment. An exemption was claimed u/s 54 as the same was invested in purchase of another apartment in June 2008. During assessment, an addition of Rs. 28,20,000/- was made by the AO to the income on account of STCG. No deduction u/s 54 was allowed since it was available only in respect of LTCG. On appeal, CIT(A) dismissed the appeal on the grounds that the rights in the apartment accrued to the assessee only when the apartment was purchased by the agreement dated 4.11.2004. It was also noted that only rights in the property and not title were transferred vide the agreement of 2.11.2007 as the assessee never had possession of the apartment. On further appeal, ITAT also dismissed the same on the ground that no rights in the property accrued to the alottees on the date of filing of the application for allotment i.e. 31.7.2004, as notes 1 and 2 enclosed with the confirmation letter dated 06.08.2004 received in response to the allotment application states clearly that no rights to the property would accrue to the allottees until the buyer’s agreement was signed and returned; the buyer’s agreement was executed only on 4.11.2004. Consequently, the ITAT found that the capital asset was sold within a period of 36 months thus rendering the profits from the sale taxable as STCG.

Before HC, assessee's counsel had submitted that by way of application dated 31.7.2004 for allotment and payment of the booking amount, assessee had acquired the "right to purchase the property"/booking rights, which were extinguished by execution of the agreement to sell dated 2.11.2007 in favour of buyer, thus making his booking rights a LTCG, held for a period of 39 months and 2 days. Alternatively, the it had submitted placing reliance 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 LTCG. The two grounds for this submission were first, that Section 2(47), which defines “transfer” in relation to a capital asset, is a wide and inclusive definition that encompasses even transfer of a right in property, thus including within its ambit, transfer of booking rights, second, that a combined reading of Sections 2(14) and 2(47) show that transfer of a capital asset is not restricted to transfer of ownership in immovable property alone. On the other hand, the Revenue's counsel had relied on the order of the ITAT member who held that booking rights accrued in the assessee only once the buyer’s agreement of 4.11.2004 was signed, thus making the profits from sale taxable as short-term capital gains.

Held that,

++ it is clear that a “capital asset” under the Act is property of “any kind” that is “held” by the assessee. Necessarily, a capital asset must be transferable. Thus, to understand what kind of property can be considered a capital asset, it would be apposite to refer to the definition of transfer in Section 2(47) of the Act. 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 which result in enforceable rights, for the purposes of the Income Tax. The scheme of the Act puts it beyond doubt that even rights or interests in a property are kinds of property that are transferable capital assets. 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. However, even while this Court agrees with the submissions of the assessee, it is pertinent to note that this question does not arise in these facts. Neither the CIT-A nor the ITAT have held that a capital asset can only be title to/ownership of the apartment. The order of the CIT-A locates the source of the booking rights i.e. date of acquisition of capital asset as the buyer’s agreement dated 4.11.2004, which finding is subsequently confirmed by the ITAT by additionally relying on the receipts at the time of confirmation of allotment. Thus, in these facts, the question of whether the booking rights are a transferable capital asset is not contentious. The judgment in Ved Parkash is also consequently of no assistance in this matter since the reasoning therein turns on whether “capital asset” refers only to title to property as opposed to other rights/interests in the property;

++ the only question that arises for consideration is whether the booking rights to the apartment accrued to the assessee on the date of application for allotment/confirmation of allotment or on the date of execution of the agreement to sell i.e. the buyer’s agreement. 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. There being no intention to convey rights in this document, it would be impermissible for this Court to find that the right to obtain title/ "booking rights" emanated from the confirmation letter. These rights may only be located in the Buyer’s agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004 These rights were transferred by the assessee on 2.11.2007. Thus, this Court is of the opinion that the capital asset in the form of these rights was held for a period of 35 months and 28 days, i.e. a short-term capital asset thus rendering the profits from the transfer of this capital asset taxable as short-term capital gains;

++ in Ved Parkash, the assessee sought to claim that the date of acquisition of the capital asset was the date of entering into the agreement to sell with the builder, by which the assessee had also received possession of the property. The Department, on the other hand, claimed that according to the conditions of the agreement, no right, title or interest in the property would be conveyed to the assessee until all instalments due and payable under that agreement were completed. It was also sought to be argued that the assessee became the titleholder to the property only once all the instalments were paid, and that title to the property was the only capital asset that could be transferred. It was in the context of these arguments that the Court held first,that it is incorrect to say that the assessee had no right or interest in the property until the completion of payment of all instalments under the agreement as the assessee was a beneficial owner from the date of signing the agreement, having been put in possession of the property as of that date and second, that Section 2(42A) of the Act, in any event only uses the term “held” and not “owned”, thus indicating that a capital asset need not only refer to full title over any property. Ved Parkash can thus be distinguished on two grounds, first, that in the instant matter, booking rights are sought to be sourced in the allotment application/confirmation letter and not in an agreement to sell, second, no right of possession or similar beneficial interest was conveyed to the assessee in the instant case when the application for allotment was made/confirmation letter was received. The agreement to sell was considered to be the source of a beneficial interest to the assessee in Ved Parkash only because the right of possession had been transferred to the assessee along with the agreement to sell. There cannot be any parity between the allotment application/confirmation letter in the instant case and the agreement to sell in Ved Parkash, since the confirmation letter specifically states that no right of provisional allotment/final allotment will result from it to the assessee. This Court is thus of the opinion that there is no legal infirmity in the order of the ITAT. The appeal is thus dismissed along with pending applications.