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.
PCIT Vs. Vembu Vaidyanathan [ITA No. 1459 of 2016] by the Hon'ble Bombay High Court Order dated 22.01.2019
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.
ACIT Vs Keyur Hemant Shah (ITAT Mumbai)[I.T.A. No.6710/Mum/2017] Order Dated 02nd April 2019
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 [344ITR501](Punjab & Haryana High Court)
In this judgment,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 Dated19/04/2012
The Bombay Tribunal hasheld that he that the period of holding had to be reckoned from the date of allotment and not fromthe date of possession of the flat.
Praveen Gupta vs ACIT (ITAT Delhi) [ITA No.2558/Del/2010] Order dated 13/08/2010
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 Vs. 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/conclusionafter 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
The author can also be reached at office.bhavikco@gmail.com
CAclubindia
Hi sir. In FY 2023-24 i sold some Shares and Mutual Funds on which LTCG are arised which is approx. 5-6 lakhs. on 01/02/2023 i booked flat in under construction property and made payment of Rs. 15,00,000/- for claim exemption u/s 54F. Flat is ready now and Final Possesstion and Sale agreement will be in this december 2024. I want to sale this flat. can i sale this flat after feb 2025 for LTCG benefits ??? As per your article said allotment date is consider. when i paid 15 lakhs MOU is signed by builder and based on that i claim exemption u/s 54F.
There is clause in Sec 54F wherein it states that "(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed." So based on the above clause and IMHO, I would like to brief about the case point to point Date of Purchase: Since the flat was under construction at the time of your investment, the date of possession or completion of construction (expected in December 2024) will typically be considered the "purchase date" for Section 54F. 3-Year Holding Period: To retain the Section 54F benefit, you must hold the flat until at least December 2027 (3 years from the possession date). Selling the flat in February 2025 would breach this condition, and the earlier LTCG exemption would be reversed. Tax Treatment if Sold in February 2025: If you sell the flat in February 2025: The exemption under Section 54F will be revoked, and the capital gain that was exempted earlier will be added to your income for FY 2024-25. Additionally, the sale of the flat itself will be subject to capital gains tax. However, the holding period for this flat will determine whether the gain is short-term or long-term. Better you consult some expert in person to get a much clarity about the case and other options. This is my understanding of the law and my opinion.
Thank you sir, but one more quesion is, Added back LTCG exemption in 24-25 is ok. but holding period of my new flat is from Payment date or Possession date or Agreement registered date ??? as i told u earlier that i made first payment of Rs. 15 lakhs on 01/02/2023 and possession expeced in this Dec 2024, so if i sold this flat after Feb 25 it would be LTCG ??? and selling before Feb it would be STCG ???
Yes correct but even after you sale the property cosidering holding period 2 years from date of MOU and taking indexation benefit on basis of payments done the 54F benefit will have to be reversed.