Right to Own Property Is to Be Considered From Date of Issue of Allotment Letter for Computing Holding Period | ITAT

Case Details: Minaxi Mahesh Pawani (Deceased) through Legal Heir Pratik Mahesh Pawani v. Income-tax Officer - [2024] 164 taxmann.com 255 (Mumbai-Trib.)

Judiciary and Counsel Details

• Girish Agrawal, Accountant Member & Sunil Kumar Singh, Judicial Member
• Ketan L. Vajani , CA for the Appellant.
• Smt. Mahita Nair, Sr. DR for the Respondent.

Facts of the Case

The assessee was allotted a flat in a building project by a builder. The builder issued a letter of allotment to the assessee, setting out the terms and conditions for the construction of the flat to be undertaken by the builder. The assessee made all the payments as required under the letter of allotment. The assessee transferred the right to the said property before the registration of the flat.

The AO was of the view that the assessee had sold the right to the property conferred on the assessee by the allotment letter and not the property. Thus, the capital gain on such transfer was computed as short-term capital gain.

The CIT(A) upheld the additions made by the AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that there was a contractual arrangement between the assessee and the builder. The letter of allotment for the flat signifies a contractual arrangement between the assessee and the builder. It created a right in personam in favour of the assessee.

The builder was restrained from selling the said identified flat to someone else because the assessee had a legitimate right to enforce specific performance in terms of the said letter of allotment.

In the instant case, the letter of allotment created a right in personam in favour of the assessee. The assessee paid 20% of the total agreed consideration as advance. All other payments on various milestones identified in the said letter have been duly met by the assessee on subsequent dates, duly acknowledged by the builder.

The holding period of the right to own the property should be computed from the date issue of the allotment letter. Thus, the right to own the property transferred by the assessee would be a long-term capital asset, and the gain on transfer of the same would be taxable as long-term capital gain.

List of Cases Reviewed

• Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 (SC) (para 15)
• Vinod Kumar Jain v. CIT in [2012] 344 ITR 501 (para 15.1)
• Prakash and Sons (HUF) [1994] 207 ITR 148 (para 15.2)
• Goetze (India) Ltd. v. CIT in 284 ITR 323
• CIT v. Pruthvi Brokers and Shareholders in 349 ITR 336 (Bom) (para 18) followed.

List of Cases Referred to

• Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1/284 ITR 323 (SC)(para 10.2)
• CIT v. Pruthvi Brokers & Shareholders [2012] 23 taxmann.com 23/208 Taxman 498/349 ITR 336 (Bombay)(para 10.2)
• Sanjeev Lal v. CIT [2014] 46 taxmann.com 300/225 Taxman 239/365 ITR 389 (SC)(para 15)
• Vinod Kumar Jain v. CIT [2010] 195 Taxman 174/[2012] 344 ITR 501 (Punjab & Haryana)(para 15.1)
• CIT v. Ved Prakash & Sons (HUF) [1994] 73 Taxman 70/207 ITR 148 (Punjab & Haryana)(para 15.2).