The Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that, holding period of property shall be computed from date of allotment letter and not from the date when the sale agreement was registered.
The Tribunal was considering the question whether the office unit (flat) sold by the assessee during the year on which long term capital gain was shown in the return was a ‘long term capital asset’ or ‘short term capital asset’ as per section 2(42A) of the Income-tax Act, 1961.
The assessee claimed that it was a ‘long term capital asset’ and therefore gain arising there-from was long term capital gain whereas AO was of the view that the said property was ‘short term capital asset’ and thus it gave rise to short term capital gain.
During the course of assessment proceedings it was noted by the AO that though allotment of the said office unit was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement and accordingly it was held that the said asset was ‘short term capital asset’. The AO relied upon the judgement of Hon’ble Supreme Court in the case of M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana wherein it was held that transfer of an immovable property is effective only from the date on which it is registered with the Sub Registrar, which is competent authority to register the documents for transfer of immovable properties. Accordingly, the AO computed the period of holding of the asset from the date of registration of the agreement with the office of Sub Registrar and found that the said property was ‘short term capital asset’. Consequently, the resultant gain was assessed as short term capital gain.
The Tribunal bench observed that, “On perusal of definition of section 2(42A) of the Income Tax Act, 1961 (“The Act”), the expression used is “held” and not “owned”. Thus, for determining capital gain the Legislature is concerned with the holding period on de facto basis and not absolute legal ownership. The court in the case of CIT vs Suresh Rao has briefly defined the expression held where a similar issue was encountered. Also judgements of various high courts state that holding period should be computed from the date of allotment letter”.
While allowing the appeal, the Tribunal bench comprising of Judicial Member D.T Garasia and Accountant Member Ashwani Taneja also observed that, “holding period should be computed from the date of issue of allotment letter. If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain”.
Read the full text of the order below.
