Date of Allotment to be considered for calculating Holding period even if Date of possession is later.

income tax
  1. Capital gain is the profit or gain that is earned from the sale of any capital asset. There are two types of capital gain: a) long term capital gain and b) short term capital gain. While calculating capital gain tax, a taxpayer must take careful consideration of the various dates i.e. date of allotment, purchase date, date of possession, date of improvement, etc.
  2. However, we may see a difference in opinion between taxpayers and Income Tax Authorities while determining the holding period of a property to determine the nature of capital gain i.e. Long term or Short term. In many situations, Income Tax Authority may take date of possession instead of date of allotment while calculating holding period which may lead to change in nature from long term capital gain to short term capital gain. This change will prevent the taxpayers from various benefits:
    (a)Cost of Indexation
    (b)Exemption under section 54, 54EC, 54F, 54B.
  3. The above difference is clarified by the decision of the Honourable ITAT (Mumbai bench) in case of Yogesh Mavjibhai Gala vs. PCIT [ITA No. 3373/Mum/2019]. In the above case, the assessee has sold 2 flats vide separate agreements dated 17.07.2013 and 21.05.2013. A letter of allotment in respect of the aforesaid property was issued on 20.02.2010 by the builder. The assessee computed long term capital gain taking date of allotment as base. Against the sale of the aforesaid flats, the assessee purchased a new residential property and claimed deduction u/s. 54. However, the PCIT was not satisfied with the claim of deduction u/s. 54 by the assessee and revised the assessment order u/s. 263 of the Act, due to the following observations:
    (a) The allotment letter did not vest any right to acquire the property with the asssessee, and only created an interest to acquire the same on the terms and conditions as would be laid down in the agreement to purchase.
    (b) The assessee had became the owner of the 2 flats, only on the basis of the respective agreements for purchase i.e dated 05.07.2013 (registered on 08.07.2013) and dated 04.05.2013 (registered on 08.05.2013) and not on the basis of the allotment letter, dated 20.02.2010 that was issued to him by the builder.
    (c) The assessee had sold the 2 Flats while they were still under construction.
    (d) The property sold by the assessee was still under construction and possession of the same was yet not handed over to him till the date of their sale.
    (e) The assessee had neither received the possession of the aforesaid flats which were under construction, nor used the same for his residence for a period of 3 years.
  4. The Honourable ITAT stated that the assessee had filed a ‘Completion certificate’, dated 12/01/2011 issued by the Architects, wherein they had stated that the 7th Floor Slab (the flats were situated on the 7th floor) had been completed. It was held that “we may herein observe that the view taken by the A.O that the date of allotment of the flats i.e 20/02/2010 was to be taken as the basis for calculating  the  period  of  the  holding  by  the  assessee,  on  the  date  of  framing  of  the assessment  was  supported  by  the  order  of  the  jurisdictional  Tribunal  i.e  ITAT,  Mumbai Bench „F‟, Mumbai  in ACIT, 18(3), Mumbai   Vs. Smt. Vandana  Rana  Roy  [ITA  No. 6173/Mum/2011, dated 07/11/2012]. In the said case, the Tribunal had observed that the “date of allotment” was to be reckoned as the date for computing the holding period for the purpose of capital gains. Also, in the case of Richa Bagrodia  Vs. Dy. CIT [2019] 175 ITD  552  (Mum), the  jurisdictional  Tribunal has held  that  in  case  of  sale  of  flat  it  is  the date of allotment of the flat and not the date of giving of possession of flat which has to be  considered  for  computing  the  holding period  of  36  months.”  Accordingly, the tribunal set aside the order passed by the PCIT u/s. 263.
  5. According to the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee purchases a flat to be constructed by Delhi Development Authority (“D.D.A.” for short) for which allotment letter is issued, the date of such allotment would be relevant date for the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee   withdraw   from   the   scheme   and   such   allotment would   be   cancelled   only   under exceptional circumstances. It was noted that the allottee gets title to the property on the issue of allotment letter and the  payment  of  installments  was  only  a  follow-up  action  and  taking  the delivery of possession is only a formality. In the circular dated 16th December, 1993 the board  has  considered that  in  cases  of allotment  of  flats  or  houses  by  co-operative  societies  or  other  institutions  whose  schemes  of allotment and consideration are similar to those of D.D.A. may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.
  6. It  can  thus  be  seen  that  the  entire  issue  was  clarified  by  the  CBDT  in  its  above  mentioned  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.

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