Indexation Benefit on LTCG Available Only from Date of Builder Buyer Agreement, Not Provisional Allotment: Delhi HC [Read Order]
Delhi High Court ruled that indexation on long-term capital gains applies only from the date of the Builder Buyer Agreement and not from a provisional allotment
In a recent ruling, the Delhi High Court held that indexation on long-term capital gains begins only from the date of the Builder Buyer Agreement and not from the date of provisional allotment.
Praveen Gupta, the appellant, filed an appeal under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal for the assessment year 2016-17.
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The Tribunal had upheld the Assessing Officer’s decision to allow indexation benefit from the financial year 2010-11, based on the Builder Buyer Agreement dated 19 July 2010, and not from 2007-08, when the provisional allotment letter was issued.
The appellant had originally booked a flat in April 2007 and received a provisional allotment letter on 21 September 2007. The appellant later changed his allotment to a different project, and a final agreement was executed in July 2010.
When the property was sold, the appellant claimed indexation benefit from 2007-08. The Assessing Officer denied this and added Rs. 4,12,812 to his income as long-term capital gains. The CIT (Appeals) and ITAT upheld the addition.
The appellant’s counsel argued that the 2007 allotment letter gave him a right in the property, and the subsequent change to another project was merely in continuation of the earlier allotment. The counsel argued that indexation should thus begin from 2007-08.
The department’s counsel argued that the allotment was only provisional and created no enforceable rights. They pointed out that rights in the property accrued only when the Builder Buyer Agreement was signed in 2010.
They relied on the Delhi High Court’s earlier judgment in Gulshan Malik v. CIT (2014), which held that rights in immovable property arise only on execution of the buyer’s agreement.
The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar observed that the facts of the case were covered by the ruling in Gulshan Malik. The court explained that booking or provisional allotment does not by itself confer rights in property and that such rights accrue only from the buyer’s agreement.
The court held that no substantial question of law arose for consideration and dismissed the appeal as without merit. It upheld the addition of Rs. 4,12,812 towards long-term capital gains, with indexation to be calculated from 2010-11, the year of the Builder Buyer Agreement.
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