The Income Tax Appellate Tribunal (ITAT), Mumbai bench, has recently held that the date of allotment of house property will be treated as the date of acquisition. The holding period for the income tax calculations will be counted from the date of allotment and not from the registration date.
Gains arising from the sale of a long term capital asset are treated as Long Term Capital Gains (LTCG). A house property will be considered as a Long term capital asset only if the taxpayer holds it for more than 24 months. Before FY 2017-18, it was 36 months.
As per section 54 of the Income Tax Act, a taxpayer is entitled to a deduction from the LTCG arising from the sale of a house property.
The deduction will only be allowed to the taxpayer if the gains are invested in another house property. This deduction reduces the taxable LTCG and results in lower tax outgo. Contrarily, if the gains arising on the sale of a house property are treated as short term, purchase of a new house will not be liable to any such benefit.
In the matter before the ITAT, Keyur Shah had sold a duplex apartment on 4 April 2012 for Rs 12 crore. He was entitled to a 50% in the property, and his capital gains on such a sale was Rs 2.9 crore. In his Income Tax Return (ITR) for the financial year 2012-13, he claimed a deduction under Section 54F of Rs 1.09 crore (for investment in a new house) and paid tax on the balance Rs 1.8 crore.
However, the assessing officer questioned that the duplex apartment was purchased via a registered agreement only on 25 March 2010. The holding period was less than 36 months, calculated from the registration date to the date of sale. Consequently, the capital gains should be treated as short-term, and the Section 54F benefit could not be allowed to Mr Shah.
The department claimed 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 dated 26 February 2008 and a payment of Rs 1.86 crore was already made by July 2008. Thus, the holding period when counting from the date of the allotment letter was more than 36 months.
ITAT after hearing to all the claims held that the date of allotment should be treated as the date of acquisition since the final registered agreement does not have material changes as compared to the allotment letter.