Whether date of allotment letter issued by builder of flats is the relevant date for acquisition of property for purpose of Sec 2(42A) - YES: HC

THE issue before the Bench is - Whether date of allotment letter issued by builder of flats is the relevant date for acquisition of property for purpose of Sec 2(42A). YES is the answer.

Facts of the case

The assessee is an individual. The assessment in this case was relates to AY 2009-10. Assessee had purchased the undivided share of land of 2150 sq.ft. out of a large extent of 4 grounds and 400 sq.ft. situated in S.Nos.2766 and 67, RS No.1570/4 at No.1, Binny Road, Chennai. Prior to the purchase of this undivided share in land, assessee had entered into an agreement with

M/s.Vishranthi Homes Pvt. Ltd.(VHPL) for constructing the built-up area of 3465 sq.ft. including common area in the above-said undivided share of land. The agreement was for purchase of land as well as for construction of home by a project promoted by VHPL. The agreement was determined for a consideration at Rs.81,68,811/- to be paid by the assessee to the builder VHPL towards construction of the residential unit. Thereafter, the assessee sold the entire unit by a sale deed dated 10.4.2008 well after 36 months from the date of agreement dated 22.2.2005 and claimed the difference between the cost of acquisition and sale consideration as long term capital gains. The AO held that the undivided share of land was registered on 4.8.2005 and since the property was purchased in the month of August, 2005 and sold in April, 2008, the capital gains arising from sale will be assessed as short term capital gains only and accordingly, AO denied benefit of Section 2(29A) and made addition. On appeal, CIT(A) had allowed the appeal filed by the assessee. On further appeal, Tribunal taking note of decisions of the Punjab and Haryana HC, namely Mrs.Madhu Kaul v. CIT 2014-TIOL-316-HC-P&H-IT and Vinod Kumar Jain vs. CIT 2010-TIOL-706-HC-P&H-IT and also on the basis of Circular No.471 dated 15.10.1986 held that the date of allotment of the flat had to be adopted as date of acquisition of the immovable property when it comes to acquiring a flat from the promoter of the flat by way of executing construction agreement and not the date of the sale deed for purchase of the relevant undivided share in land. Accordingly, the Tribunal confirmed the order of CIT(A) and dismissed the appeal filed by the Revenue.

Held that,

++ on the basis of the above admitted facts, the Tribunal placed reliance on the decision of the Punjab and Haryana High Court reported in Mrs.Madhu Kaul v. CIT 2014-TIOL-316-HC-P&H-IT, where an identical issue arose as to whether the date of capital gains should be reckoned from the date of allotment under a scheme framed by the DDA or it should be reckoned from the date of actual sale, which is subsequent to the date of allotment. The Punjab and Haryana High Court relied upon the circular, which was issued in relation to the allotment of flats to allottees under self-financing scheme of DDA, came to hold that a right has been conferred on the allottee to hold a flat which was later identified and possession delivered on a later date. The High Court also held that the mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter and the payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter. In effect, the High Court held that the allottee gets the title to the property on issuance of allotment letter and the payment in instalments is only a consequential act upon which delivery of possession to the property flows. Similar view has been taken in the decision reported in Vinod Kumar Jain vs. CIT 2010-TIOL-706-HC-P&H-IT by the Punjab and Haryana High Court;

++ the Delhi High Court has also observed in the decision, which has been extracted in the order of the Tribunal in paragraph7.1 of the order, holding that the date of allotment of the flat to the assessee by the promoter should be adopted as the date of acquisition of the immovable property. In the present case, the right to the property flows from the date of agreement with the builder, viz., 22.2.2005. Over a period of time payments have been made and the transaction was concluded in accordance with the terms of the agreement by registering the Undivided share in land and handing over the flat. Therefore, the assessee had a right consequent on the agreement dated 22.2.2005 in respect of the property sold by the assessee on 10.4.2008. Therefore, it exceeds the period of 36 months and the assessee has rightly claimed the benefit of long term capital gains. In the light of the abovesaid decisions and the Circular, we do not find any reason why the same principle should not be applied to all transactions based on agreements in respect of capital asset. It has been correctly pointed out by the Commissioner of Income Tax (Appeals) as well as the Tribunal following the decision of the Punjab and Haryana High Court that the breach of agreement would only give right to the beneficiary for enforcing the right over the property. We find no reason to differ with the said reasoning. Therefore, we find no question of law much less any substantial question of law arises for consideration in this appeal. Accordingly, this Tax Case (Appeal) stands dismissed.