Allotment date & not registration date is relevant for determining the holding period for capital Assets as Long-Term or Short-Term
The ITAT Mumbai has recently held that for determining the holding period for capital gains (long-term or short-term) of a property sale we need to look at the allotment date rather than the registration date.
Let us have a Short Overview of the case:
Brief facts:
A homeowner sold two flats in Malad, Mumbai in AY 2010-11 (FY 2009-10) for Rs 43 lakh each.
he flats were alloted on October 7, 2005 (FY 2005-06) and sold in FY 2009-10 but were registered in FY 2015-16.
He reinvested the gains from the sale of these flats to buy another property and thereby claimed Section 54 long term capital gains (LTCG) tax exemption in his ITR for FY 2009-10. This ITR was accepted by the tax department back then.
However, when the flats were registered, the AO contested that the taxpayer has got Rs 1.42 crore STCG rather than LTCG on this property sale transaction.
ITAT Ruling:
We are of the opinion that the registration of the flats for purchase and sale entered into the year under consideration (FY 2015-16) are liable for any capital gain tax as the assessee had already declared the said transaction of sale in AY 2010-11, which has been duly accepted by the department. In the result the appeal of the assessee is allowed.
It may be noted that by recognizing the date of allotment as the commencement of ownership, the ruling facilitates earlier qualification of a property as a long-term capital asset. Taxpayers may benefit from more favorable tax treatment, including a reduced tax rate of 12.5%/ 20% on LTCG with indexation benefits, as opposed to being taxed for STCG. This judgement brings clarity to the determination of the holding period based on substantive rights acquired at the time of allotment.”
Conclusion:
The Mumbai ITAT has held that the letter of allotment is to be considered to determine the period of holding. Tribunals and High Courts of various jurisdictions have arrived at a similar conclusion in the context of different fact patterns. However, the underlying principle that emergers is that the sale deed or document of conveyance only transfers the legal title while an agreement to sell or allotment letter confers the right of ownership to the purchaser and hence, the date of such allotment letter should be considered for the purpose of determining the period of holding. The above is a fact specific exercise and courts have, in certain circumstances held that the cumulative conditions i.e.:
(i) registration of sale deed,
(ii) assessee should have acquired a legal right to receive consideration and (iii) property’s possession must be handed-over to the buyer, should be satisfied for a transfer to take place.
The copy of the order is as under:
