Will allotment date of property will be considered over registration date? Analysis of LTCG computation for real estate assets
Introduction
I was reading a recent decision made by the Mumbai Bench of Income Tax Appellate Tribunal, which was dated March 24, 2025, it had brought a relief to the taxpayers by emphasising on the long-held legal view that the issue related to “date of allotment” which is to be considered for determining the period of holding of immovable property and not the date of registration or possession.
Period of holding is important because there is need to classify them as long-term capital gains (after 24 months) or short term capital assets both attracting different tax rates.
Let’s summarise this case, in this ruling, it is said that in the case of an individual taxpayer, wherein a Rs. 1.42 crore addition was made as short-term capital gains was deleted, hence it gives a crucial interpretational principle as per Income tax act relating to Sections 2(29A), 2(42A), 54, and 54F of the Income-tax Act, 1961, we will discuss them in detail in this article
Facts of the case
The taxpayer along with his spouse had jointly booked two flats in Malad, Mumbai in FY 2005-06 and were allotted those units on October 7, 2005. These flats were subsequently sold in FY 2009-10 for Rs. 21.55 lakh each. The taxpayer duly filed his tax return for AY 2010-11 and declared Long-Term Capital Gains (LTCG), also claimed exemption under Section 54.
In Section 54 an exemption is provided from capital gains arising on transfer of residential house, if assessee fulfils certain conditions including purchase or construction another residential house.
In this case, as the registration of the said flats occurred in FY 2015-16, and this formed an issue dueto which this addition was made by the Revenue in this case, resulting in the Assessing Officer reopening the matter in FY 2015-16, contending that since registration occurred only in that year, the taxpayer’s holding period was less than 36 months and hence, the transaction gave rise to STCG and not LTCG. Accordingly, an addition of Rs. 1.42 crore was made in the taxpayer’s income under the head STCG.
What was the legal view point in this case?
As we discussed above, the main issue in this case was whether the holding period for determining LTCG or STCG should be taken from the date of allotment or from the date of registration of the immovable property?
The taxpayer challenged the addition before the CIT(A), Delhi, who had taken the AO’s stand. Aggrieved with the order assessee went on further appeal with ITAT, the Mumbai Bench of ITAT reversed the CIT(A)’s order, bringing a substantial clarity to an otherwise disputed and fact-sensitive issue.
Tribunal’s analysis and observations
The ITAT relied heavily on the principle of ownership through allotment and analysed the taxpayer’s substantial rights and obligations started from the date allotment and when the allotment letter was sanctioned. Hence, ITAT made the following key legal observations in this case
First, the allotment date confers de facto ownership rights which means in this case, the Tribunal agreed that the allotment letter, issued by the builder, upon payment of substantial consideration, gave the buyer with substantial rights relating to ownership, that included the right to specific performance, right to receive possession, right to transfer interest etc, that was the reason, as per ITAT the holding period should commence from the date of allotment, and not from registration.
Second one was reliance on judicial precedents where the tribunal referred to the ruling of Delhi High Court, the case of K. Ramakrishnan (2014) {ITA 114/2014 & CM Appl.4959/2014} and the coordinate bench ruling in Anita D. Kanjani (2015) {ITA No. 2291/Mum/2015}, in both of the cases it was held that “ownership” commences from the date of allotment, provided that significant consideration has been paid and rights have accrued.
Thirdly it was seen that whether the income of the assessee has been already offered and assessed in AY 2010-11, here the ITAT emphasised that the taxpayer had already declared LTCG in AY 2010-11, and the return was processed under Section 143(1). Reassessment in FY 2015-16 on the same transaction was unwarranted, absent any fresh consideration or income.
What are the implications of the above ruling?
Firstly, the finality of capital gains in the year of sale, here the Tribunal ruled that since the flats were sold and gains were declared in FY 2009-10, reopening the case in FY 2015-16 solely due to registration formalities was procedurally and legally flawed, and being an auditor of a real estate company, while verification of customer files and relating to this case law I found that in this situation it was baseless to open up the case as most of the time customers avoid registering the property instead they make other agreement to save costs in case they plan to sell the property in future.
Second one is the broader recognition of substantive ownership, here the ruling reinforces that ownership as per the income tax act is not merely legal (via registration) but substantive and equitable, that is arising from allotment and payment.
Impact on Section 54 and Section 54F claims made by taxpayer
The implications of this ruling are particularly significant for claims under Section 54 and 54F, which are contingent on the asset being a long-term capital asset and the Investment in another residential house, by recognising allotment date as the date of acquisition, taxpayers can satisfy the 24/36-month holding requirement, avail indexation benefit and claim capital gains exemptions appropriately
What we learned with this case law?
In every case I discussed at taxguru platform via my articles, there is one common point that the documentation is Key, In this case, the allotment letter, proof of payment schedules, and agreement to sell were critical. Correspondence with builders confirming possession rights as well as the transferability of the property strengthened the claim.
Next one is registration is not equivalent to the ownership, however as seen in this case, the registration is not the only criterion to determine ownership for capital gains computation, but the substantive rights and intention of parties are equally crucial.
The key takeaway from this case pertains to its precedential value, which refers to the extent to which a prior judicial decision is regarded as binding or persuasive authority in subsequent cases involving analogous facts or legal issues, as this ruling aligns with a growing body of jurisprudence that treats allotment as the starting point of ownership, consistent with the intent of the Income-tax act and CBDT circulars.
Conclusion
The ITAT Mumbai’s ruling is a significant victory for taxpayers and practitioners alike, providing clarity and relief in capital gains tax computation on real estate transactions. It underscores that substance takes precedence over form, and economic ownership is more important than legal formalities in determining tax liabilities.
It is advisable that taxpayers maintain detailed records of allotment, payments, and sale transactions, and seek professional advice when dealing with property-related capital gains to ensure maximum compliance and benefit under the law.
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Author can be contacted at aman.rajput@mail.ca.in
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