Flat Allotment Date is Crucial for the Capital Gains : ITAT

A very common question in mind of flat buyers rises at the time of sale of flat is -Which date–allotment date  or Possession or Registration of Flat – should be taken for capital gains purpose because if the flat is  Short Term Capital asset much higher tax is payable and no scope for availing exemption is available.

Recently, ITAT New Delhi in case of Praveen Gupta vs ACIT [137 TTJ 307] was seized of the issue and held that the allotment date  of flat by builder is the date from which indexation is to be computed for the cost of acquisition. In other words , it held that the date of allotment is the date from which  the period of holding is to be counted.

Allotment Date is Crucial

Facts of the case is that the assessee booked a flat on DLF in 1995-96 . He paid as per schedule from 1995-96 onwards. He fully paid the price in FY 2001-02 .He sold the flat  vide sale deed dt. 30th Nov., 2006 for a sum of Rs. 90 lacs. He computed indexation for each financial years when he paid to builder , starting from the first year of payment.

The A.O rejected the computation of assessee and took the year 2001-02 as the starting date from which he was considered the owner and accordingly he indexed cost from FY 2001-02 onwards.The CIT(A ) also confirmed the order of A.O . When the matter went to the Tribunal  on eo fthe issue before it was whether the assessee can index cost from the start of the year when he booked the flat (FY 1995-96)

The Tribunal allowed appeal by the assessee  and held as under

26. Now, coming to the second question, which relates to the date from which the indexed cost of acquisition is to be computed. Here, it has been the case of the assessee that on the date of allotment of flat, the property was identified. The assessee got the right over the said property and from that date the indexation benefit has to be given to the assessee. Explanation (iii) to s. 48 reads as under which makes entitle the assessee to the indexation benefit:-

“(iii) ‘indexed cost of acquisition’ means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later.”

29. According to the aforementioned definition, capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not. By entering into an agreement to allot a flat, the assessee has identified a particular property which he intended to buy from the builder and the builder is also bound to provide the applicant with that property by accepting certain advance amount and making agreement for balance payment as scheduled in the agreement. Thus, going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word ‘held’ used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof, the assessee will be holding capital asset and, therefore, the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore, we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed.

Second decision supporting Allotment Date view

The second case is ITAT Mumbai in Nita A. Patel vs ITO 132 TTJ 468 [2009]  in which the Tribunal overruled the view of  the AO and the CIT(A)  that the first year in which the asset was held means the physical possession of the property.It hold that the purchase agreement gave the right to the assessee , as such she can ask for indexation from that date.

Facts of the case

Briefly stated, the assessee sold a property being a flat,  for a consideration of Rs. 1,68,00,000. The assessee declared the original cost of the flat at Rs. 46,38,825 as on 27th Dec., 1990.

The AO observed that the assessee got the possession of house on 6th Jan., 1992 after paying Rs. 18,00,000 to the tenant on 6th Jan., 1992.as per consent terms arrived between the parties in respect of Writ Petn. No. 3622 of 1999 filed in the High Court of Bombay, The AO observed that since the assessee got possession only on 6th Jan., 1992, it could be said that she held the property from that date in view of s. 48. He accordingly calculated the indexed cost by taking 6th Jan., 1992 into consideration.

The CIT(A ) upheld the decision of the A.O.

On appeal , the Tribunal held in favour of assessee and concluded

9. The learned CIT(A) considered the decision of the Hon’ble Bombay High Court in the case of Smt R.R. Sood (supra). In our considered view the above said decision does not apply. In the present case the property is purchased by way of agreement dt. 27th Dec., 1990 and the assessee has obtained the certificate under s. 269UL(3) as early as 13th Feb., 1991. The assessee paid the balance also subsequently as per the agreement after obtaining the certificate. The ownership has been passed by virtue of this agreement but the property was in the possession of the tenant for which the settlement was made later on by paying further amount for the vacation of the tenant. It cannot be stated that only after vacating the tenant the assessee got possession because the assessee is the owner of the property w.e.f. 27th Dec., 1990, but is in the adverse possession of a tenant which was subsequently got vacated. On the facts of the case decision of the Hon’ble Bombay High Court in the case of CIT vs. Smt. R.R. Sood (supra) does not apply and hence the reliance on the decision made by the CIT(A), in our opinion is not correct. Moreover the said decision was impliedly overruled by the decision of Hon’ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 1TR 625 (SC) wherein it was held that requirement of registration of sale deed is not warranted. Reliance on the above said decision in the case of Smt. R.R. Sood (supra) given in different set of law and facts by the CIT(A) is not correct. Since the assessee is deemed to be holding the property w.e.f. 27th Dec., 1990 as owner, claim of indexation from that date is correct.
10. In view of this we uphold the contentions of the assessee and direct the AO to allow indexation as claimed. Grounds are allowed.

Conclusion

Based on the aforesaid tow ruling , by Tribunal , Delhi and Mumbai , Bench , it can be safely said that in case a person buys flat ,

1. the asset is created on the date of signing the purchase agreement (allotment date of the flat).
2. One can compute the period of holding of the asset from the allotment date.

One can compute the indexation for cost year wise i.e from the year of allotment to the last year in which final payment is done.

 

 

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CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI