Indexation from Date of Agreement, Not Possession: ITAT Grants Relief to NRI Assessee in Long-Term Capital Gains Dispute [Read Order]
Tribunal ruled that indexation for computing long-term capital gains should begin from the date of agreement to sale, not possession, granting relief to NRI assessee
Indexation - Date of Agreement - Possession - ITAT - Relief to NRI - Long-Term Capital Gains Dispute - taxscan
Indexation - Date of Agreement - Possession - ITAT - Relief to NRI - Long-Term Capital Gains Dispute - taxscan
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favour of non-resident Indian (NRI) Braj Kishore Singh, directing the Assessing Officer (AO) to consider the date of property acquisition as the date of agreement to sale, not the date of possession, for calculating the indexed cost of acquisition. This decision aligns with established precedents and offers critical clarity on the interpretation of Section 48 of the Income Tax Act, 1961.
The matter is concerning Assessment Year (AY) 2015–16. Braj Kishore Singh, an NRI during the relevant financial year, sold a residential flat for ₹70 lakh but had not filed a return of income. The case was picked up for reassessment under Section 147, citing escapement of income. In the reopened proceedings, the AO computed the Long-Term Capital Gain (LTCG) at ₹17,04,264, allowing indexation only from FY 2010–11, the year in which the assessee received possession of the flat.
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Singh contended that he had entered into an agreement to purchase the flat in November 2007, and had already made significant payments, over 64% of the total cost, by FY 2007–08. Therefore, indexation should begin from FY 2007–08, the year in which he acquired rights in the property.
The main issue of the dispute lay in the interpretation of the phrase “held” as used in Explanation (iii) to Section 48 of the Income Tax Act. While the AO and Dispute Resolution Panel (DRP) relied on the date of possession to determine the period of holding, the assessee, relied on a host of judicial precedents that upheld the date of agreement/allotment as the correct reference point. The DRP rejected the assessee’s argument, citing that the ownership and physical possession were handed over in December 2010, and therefore indexation should begin from that date.
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The ITAT Bench comprising Ms. Padmavathy S (Accountant Member) and Shri Raj Kumar Chauhan (Judicial Member) disagreed with the DRP's conclusions. After extensive deliberation and citing a series of binding precedents, the Tribunal ruled that the date of agreement to sale, in this case, 16 November 2007, marked the beginning of the assessee’s holding period.
The Tribunal found that Singh had executed a registered agreement for sale in November 2007, paid a substantial portion of the total cost soon after, and acquired full rights to the property from that date. The delay in possession or registration did not nullify his ownership or holding period for the purposes of computing LTCG.
The ITAT allowed Singh’s appeal and directed the AO to compute LTCG with indexation starting from FY 2007–08. The ITAT restored the matter regarding additional amenities cost of ₹2.32 lakh to the AO for fresh examination and declared interest and penalty grounds as premature and did not adjudicate them.
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