Facts of the Case

  • The assessee booked a HUDA plot and deposited earnest money on 18.06.1986.
  • The plot was allotted to the assessee on 03.08.1999.
  • Following allotment, the assessee deposited further amounts and by 03.10.1999, approximately 96% of the tentative cost had been paid.
  • The terms of allotment provided substantial ownership rights in favor of the assessee.
  • Physical possession of the plot was acquired on 12.12.2005.
  • The plot was ultimately sold through a registered sale deed dated 09.01.2008.
  • The Assessing Officer treated the gains as Short-Term Capital Gain, taking the date of execution of the conveyance deed as the relevant date.
  • The assessee argued that the holding period should begin from the date of allotment of the plot and not from the date of conveyance.

Issues Involved

  1. Whether the date of allotment or the date of execution of the conveyance deed should be considered for computing the holding period of a capital asset.
  2. Whether beneficial ownership acquired under an allotment letter amounts to "holding" of the asset for purposes of Long-Term Capital Gain.
  3. Whether the assessee was entitled to exemption under Section 54EC of the Income Tax Act.

Petitioner’s Arguments (Revenue/Appellant)

The Revenue submitted:

  • The ITAT erred in affirming the deletion of Rs.55,72,612/-.
  • The assessee did not hold the asset for more than thirty-six months.
  • Mere allotment did not create ownership rights sufficient to satisfy the holding requirement under the Income Tax Act.
  • The relevant date for computing the holding period should be the date of execution of the conveyance deed and not the date of allotment.
  • Consequently, the gain should be assessed as Short-Term Capital Gain and the assessee should not receive the benefit of Section 54EC.

Respondent’s Arguments (Assessee)

The assessee submitted:

  • The Assessing Officer incorrectly considered the date of conveyance deed instead of the date of allotment.
  • Upon allotment of the plot and payment of the required consideration, beneficial ownership rights were created in favor of the assessee.
  • By 03.10.1999, 96% of the consideration had already been paid.
  • The allotment letter conferred substantial rights and ownership interests in the property.
  • Registration of a document operates retrospectively and relates back to the date of execution.
  • Judicial precedents consistently recognize the date of allotment as the relevant date for computing the holding period of the asset.

Court Findings / Order

The Delhi High Court held that:

  • The assessee acquired beneficial interest and substantial rights in the property when approximately 96% of the amount had been paid pursuant to allotment.
  • The date of allotment and acquisition of beneficial ownership was the relevant factor for determining the holding period.
  • Since beneficial ownership existed from 03.10.1999, the asset was held for more than thirty-six months.
  • The assessee was therefore entitled to Long-Term Capital Gain treatment and consequential benefit under Section 54EC.
  • The order of the Tribunal did not disclose any error requiring interference.
  • Accordingly, the Revenue’s appeal was dismissed.

Important Clarification

The judgment clarifies that for capital gains computation, ownership is not confined merely to execution of a registered conveyance deed. Acquisition of substantial rights and beneficial ownership under an allotment letter may constitute holding of a capital asset.

For determining whether gains are Long-Term Capital Gains, the date of allotment can be treated as the starting point where substantial rights in the property accrue to the assessee.

Sections Involved

  • Section 54EC of the Income Tax Act, 1961
  • Section 2(42A) of the Income Tax Act, 1961
  • Section 47 of the Registration Act, 1908 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:1460-DB/RVE18032014ITA1142014.pdf

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