The determination of the holding period for a capital asset is crucial for ascertaining whether it qualifies as a long-term capital asset or a short-term capital asset. This distinction significantly impacts the tax implications of any capital gains arising from the sale or transfer of the asset. In the context of residential properties, a common point of contention has been whether the holding period should be calculated from the date of allotment or the date of agreement. This article aims to shed light on this issue, analyzing relevant case laws and providing a comprehensive understanding of the prevailing legal position
The assessee argued that the residential unit in question was acquired on the date on which the allotment letter was issued by the builder which was on 31st December, 2004. The Assessing Officer however contended that the transfer of the asset in favour of the assessee would be complete only on the date of agreement which was executed on 17th May, 2008.
Entire issue was clarified by the CBDT in its two circulars dated 15th October, 1986 and 16th December, 1993. In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property.
In that view of the matter, CIT appeals of the Tribunal correctly held that the assessee had acquired the property in question on 31st December, 2004 on which the allotment letter was issued.
Then, the Bombay High Court, held in January 2019 that the date of allotment would be treated as the date of acquisition. The ITAT reiterated the same principles.
In the present case, Mumbai-based Keyur Hemant Shah had sold on April 4, 2012 a duplex apartment with 4 car parkings in a Cooperative Society in Mumbai for Rs.12 crore, the assessee’s share being 50% in the same. After adjusting the indexed cost of acquisition, LTCG worked out to be Rs 288.73 lakh, and after claiming deduction u/s 54F for Rs109.40 lakh against the same, the assessee (Shah) offered the balance LTCG of Rs 179.33 lakh to tax. The income tax officer, however, said that the very flat was purchased by Shah via a Registered Agreement for Sale on March 25, 2010 and his holding period was less than 36 months (before FY 2017-18 / AY 2018-19) from this date. That led the AO to treat the resultant gains as short term (STCG).
The Appellant, however, defended the same by submitting that the said flat was purchased via the allotment letter dated February 26, 2008 and substantial payment of Rs 185.50 lakh was already made by July 24, 2008. Thus, the holding period, as counted from the date of allotment letter, was more than 36 months and, therefore, the resultant gains should be considered as long-term capital gains.
Keeping all these things in view, the Mumbai bench of ITAT observed that the date of allotment will be treated as the date of acquisition.
- Vinod Kumar Jain Vs CIT [344 ITR 501] (Punjab & Haryana High Court)
In this judgement, the Punjab and Haryana High Court held that for flats allotted by the Delhi Development Authority (DDA), the holding period should be counted from the date of allotment letter. The Central Board of Direct Taxes (CBDT) also issued a circular (No. 471, dated 15th October 1986), where it has clarified that for flats under self-financing schemes of the DDA, the holding period shall begin from date of the allotment letter
- Jaimal K Shah, Mumbai Vs Department Of Income Tax (ITAT Mumbai) [ITA No, 6966/Mum/2010] Order Dated 19/04/2012:
The Bombay Tribunal has held that he that the period of holding had to be reckoned from the date of allotment and not from the date of possession of the flat.
In this case the assessee had bought the flat from DLF in installment basis which was under construction at the time of allotment and payments were made in installment.
The Learned ITAT Delhi Bench in a Landmark judgement has held that the asset or right in asset is created when the builder issued an allotment letter to the assessee specifying the actual unit no of the property and any payments made before allotment is to be provided indexation from the date of allotment and any payment made after is to be provided benefit of indexation from the date the payment is made
In brief, Period of Holding to be considered from date of allotment and indexation benefit to be considered from date of payment to builder
- Madhu Kaul CIT (Punjab & Haryana High Court) [ITA No.89 of 1999] Date of Order: 17th January, 2014
In this case, Punjab & Haryana High Court held that identification of the flat or physical delivery of possession is irrelevant as right to hold properly stands crystalised upon allotment.
The allotment of a particular flat and delivery of its possession would relate back to the allotment.
The payment of balance installments, identification of a particular flat and delivery of possession are consequential acts, that relate back to and arise from the rights conferred by the allotment letter.
Conclusion
Based on the analysis of the relevant case laws and legal principles, it can be concluded that the holding period for a residential property, for the purpose of determining long-term capital gains, should generally be calculated from the date of allotment. This interpretation aligns with the prevailing legal position and the guidance provided by the Central Board of Direct Taxes (CBDT).
However, it is essential to note that specific circumstances or contractual terms might necessitate a different approach. In cases where the allotment is subject to conditions or contingencies, the date of agreement or completion might be more relevant. Therefore, it is advisable to consult with a tax professional to assess the specific facts of a case and determine the most appropriate holding period for calculating capital gains.
Disclaimer
- We request readers to seek professional advice before arriving at an decision/conclusion after reading. We are not responsible for any loss arising to anyone after referring and relying on this article. Above views are based on our understanding of the provisions
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