In a decision that will benefit many taxpayers, the Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that the date of allotment of a house shall be treated as the date of acquisition. The holding period will be counted from this date and not from the date of registration.
Gains arising from the sale of a long-term capital asset are treated as long-term capital gain (LTCG). For an asset to be regarded as long-term, the holding period of a house property is 24 months. Prior to 2017-18 financial year, it was 36 months.
The tribunal’s decision is important as a taxpayer (under Section 54-F) is entitled to a deduction from LTCG arising on sale of a house if investments are made in another house within a stipulated period. This deduction reduces the taxable component of the capital gains and results in a lower tax outgo.
On the other hand, if the gains arising on sale of a house are treated as short-term, purchase of a new house will not entitle a taxpayer to any such benefit.
With the ITAT saying that the holding period should be computed from the date of allotment, it will help many taxpayers as typically the registration happens much later.
In the matter before the ITAT, Keyur Shah had sold a duplex apartment on April 4, 2012 for Rs 12 crore. His share in the property was 50% and the corresponding capital gains worked out to Rs 2.9 crore. In his income tax (I-T) return for the financial year 2012-13, he claimed a deduction under Section 54-F of Rs 1.09 crore (for investment in a new house) and offered the balance Rs 1.8 crore as taxable.
However, the I-T officer contested that the duplex apartment was purchased via a registered agreement only on March 25, 2010. Counting from this date to the date of sale, the holding period was less than 36 months.
Thus, the capital gains should be treated as short-term and the Section 54F benefit could not be allowed, the official held.
The I-T department submitted to the ITAT that “the allotment letter is only an offer and the right or interest in property accrues only on signing and stamping of the agreement.” On the other hand, Shah argued that the duplex flat was purchased via an allotment letter dating back to February 26, 2008 and a substantial payment of Rs 1.86 crore was already made by July that year.
Thus, the holding period when counting from the date of the allotment letter was more than 36 months.
“The ITAT rightly held that the date of allotment should be treated as the date of acquisition, since there were no material changes in the terms and conditions as compared to those in the final registered agreement,” said Gautam Nayak, tax partner at CNK & Associates.