P.P. MENON Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) The question raised in this appeal filed by the assessee is whether the assets sold by him, viz., the hospital building and land on 18-4-2001 is a short-term capital gain or a long-term capital gain as claimed by him. The hospital building and land was previously owned by a Firm in which the appellant was a partner. The firm was dissolved on 15-4-2001 and in the dissolution deed the entire assets including the hospital building and land were taken over by the assessee. We are told that the firm was subjected to levy of tax on capital gains only on the land sold and not for the hospital building. However there is no need for us to consider the liability of the firm for capital gains on the transfer of the hospital building and land to the assessee. The assessee sold the hospital building and the land for Rs. 40,12,000 after 3 days of acquiring the same for Rs. 14,82,222. According to the assessee/appellant, even though the asset was taken over by him only on 15-4-2001 along with all other assets and liabilities of the firm and were sold along with the residential house and the hospital building on 18-4-2001 the period of holding should be reckoned by including the period when the assessee was a co-owner of the building. If that is taken, the period of holding is more than 36 months and the capital gain is to be dealt with as 'Long-term capital gain'. Even though the assessee succeeded in his first appeal, on second appeal by the revenue, the Tribunal reversed the order. This appeal is filed against the decision of the Tribunal.

(2.) We have heard counsel for the appellant. The counsel has relied on Explanation (b) to Section 2(42A) of the Income-tax Act (hereinafter referred to as the 'IT Act') and contended that if the period of holding of the assets is more than 36 months, the capital gain is to be dealt with as 'Long-term capital gain'. The above section defines short-term capital asset as capital asset held by the assessee for not more than 36 months immediately preceding the date of its transfer/sale. Explanation (i)(b) of Section 2(42A) of the Income-tax Act provides certain exception to this position. It reads as follows:

(3.) The relevant provision of Section 49(1)(iii)(b) reads as follows: