Date of allotment determines acquisition date for holding period in redevelopment cases, not possession

By | January 15, 2026
0 Comment

Date of allotment determines acquisition date for holding period in redevelopment cases, not possession

 

Issue

Whether the capital gains arising from the sale of a redeveloped flat should be treated as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the date of allotment versus the date of construction completion or physical possession.

Facts

  • Assessee: Individual filing for Assessment Year 2014-15.

  • Original Asset: The assessee originally purchased a flat in 1988.

  • Redevelopment: The building went under a redevelopment scheme in 2006, where the assessee was allotted a new flat.

  • Sale: The assessee sold the redeveloped flat in 2013.

  • AO’s Stand: The Assessing Officer (AO) treated the gains as STCG, arguing that the holding period began only when the building was completed in 2012 or when the final installment for additional area was paid on 01-04-2013.

  • CIT(A)’s Stand: The Commissioner (Appeals) upheld the AO’s order, emphasizing that physical possession could not have occurred before the building’s completion in May 2012.

Decision

  • Allotment Date is Key: The Tribunal held that in allotment schemes (akin to DDA schemes), the date of allotment is the date of acquisition for computing the holding period.

  • Crystallization of Rights: The assessee’s rights in the redeveloped flat crystallized upon the issuance of the allotment letter and agreement.

  • Irrelevance of Installments: The mere payment of installments for additional area, even if the last one was paid shortly before the sale (2013), does not postpone the date of acquisition.

  • Possession vs. Title: The lower authorities’ emphasis on the completion of construction or physical possession was legally incorrect. The holding period is determined by when the specific right in the property is acquired, not necessarily when physical entry is granted.

  • Holding Period Calculation: Counting from the date of allotment/crystallization of rights (which was much earlier than 2012), the assessee had held the asset for more than 36 months.

  • Outcome: The asset qualifies as a Long-Term Capital Asset, and the gains are taxable as Long-Term Capital Gains (LTCG).

Key Takeaways

  • Holding Period Trigger: For under-construction or redeveloped properties, the holding period for Capital Gains tax purposes starts from the date of the Allotment Letter, provided it confers a right to the property.

  • Construction Delays: Delays in construction or handing over of possession do not reset the holding period clock.

  • Payment Schedule: Paying installments over time is merely a mode of discharging the purchase price; it does not mean the asset is “acquired” only upon the final payment.

  • Redevelopment Rights: In redevelopment scenarios, the period of holding often relates back to the original date of rights surrender or the fresh allotment date, usually making the resulting gains Long-Term if the process spans over 3 years (now 2 years for immovable property).

IN THE ITAT MUMBAI BENCH ‘F’
Mrs. Urmila Jagdish Mehta
v.
ACIT*
Smt. Beena Pillai, Judicial Member
and MAKARAND VASANT MAHADEOKAR, Accountant Member
IT APPEAL No. 5944 (Mum) OF 2024
[Assessment year 2014-15]
DECEMBER  29, 2025
Rajiv Khandelwal, Ld. AR for the Applicant. Ms. Kavitha Kaushik, Ld. DR for the Respondent.
ORDER
Makarand Vasant Mahadeokar, Accountant Member.- This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”], dated 19.09.2024, passed under section 250 of the Income-tax Act, 1961[hereinafter referred to as “the Act”], for the Assessment Year 2014-15, arising out of the assessment order dated 02.12.2016, passed by the Assistant Commissioner of Income-tax, Circle 33(3), Mumbai[hereinafter referred to as “Assessing Officer or AO”], under section 143(3) of the Act.
2. The brief facts of the case are that the assessee is an individual. She filed her return of income for A.Y. 2014-15 on 31.07.2014, declaring total income of Rs. 1,98,31,480/-. In the return of income, the assessee declared long-term capital gains of Rs. 1,93,94,645/- arising from sale of a residential flat and claimed exemption under section 54 of the Act. The case was selected for scrutiny and assessment was completed by the Assessing Officer under section 143(3) vide order dated 02.12.2016, determining the total income at Rs. 2,15,79,640/-. In the said order, the Assessing Officer treated the capital gains arising from sale of the residential flat as short-term capital gains and made an addition of Rs. 2,11,44,607/-.
3. The Assessing Officer noted that the assessee had originally purchased a flat in New Sarvottam CHS, Andheri, Mumbai, in the year 1988 for Rs. 2,25,000/-. The said society entered into a redevelopment agreement with M/s Kumar Builders in the year 2006. Pursuant to the redevelopment arrangement, the assessee became entitled to a new residential flat admeasuring 900 sq. ft. carpet area, comprising exchange area, free-of-cost additional area and purchased additional area. The Assessing Officer recorded that the assessee paid consideration of Rs. 9,96,600/-towards purchase of additional area of 161 sq. ft., with the last installment of Rs. 99,660/- paid on 01.04.2013. The Assessing Officer inferred that the assessee received possession of the new flat sometime in April 2013 and thereafter sold the flat on 31.12.2013 for a consideration of Rs. 2,35,00,000/-.
4. On the above basis, the Assessing Officer concluded that the holding period of the flat was less than 36 months, treated the asset as a short-term capital asset, denied the exemption claimed under section 54 and assessed the gains as short-term capital gains.
5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated that she had received possession of the redeveloped flat in the year 2010 and, therefore, the holding period exceeded 36 months, rendering the gains as long-term capital gains. The assessee sought to file additional evidence, a possession letter dated 22.11.2010 allegedly issued by M/s Kumar Builders, and an allotment/intimation letter dated 24.11.2006 issued by the society. The CIT(A) admitted the additional evidence and called for a remand report from the Assessing Officer. In the remand report, the Assessing Officer objected to the admission of additional evidence under Rule 46A and stated that sufficient opportunity had been provided to the assessee during assessment proceedings. During the remand proceedings, a notice under section 133(6) was issued to M/s Kumar Builders for verification of the date of possession. On merits, it was reported by the Assessing Officer that M/s Kumar Builders had stated that Flat No. B-1008 was completed in May 2012, possession was given to the assessee thereafter for fit-out purposes, and the occupation certificate had not been received as on the date of enquiry. The Assessing Officer also noted that the letter of allotment from the Society has no relevance in deciding the date of possession. The Assessing Officer expressed doubts regarding the possession letter dated 22.11.2010, holding that possession within a few days of the redevelopment agreement was improbable and inconsistent with the contractual terms.
6. After considering the assessee’s rejoinder, the remand report and the material on record, the CIT(A) held that allotment or society letters do not confer possession, physical possession could not have been received prior to completion of the building in May 2012, and the holding period of the flat commenced only from May 2012.The CIT(A) relied upon various judicial precedents to hold that physical possession is determinative, and concluded that the flat was held for less than 36 months prior to its sale on 31.12.2013.Accordingly, the CIT(A) confirmed the action of the Assessing Officer in treating the gains as short-term capital gains and upheld the addition of Rs. 2,11,44,607/-. The appeal of the assessee was dismissed.
7. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising following grounds:
The Commissioner of Income-tax (Appeals) at the National Faceless Appeal Centre (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assistant Commissioner of Income-tax, Circle 33(3), Mumbai (hereinafter referred to as the Assessing Officer) in treating a long-term capital asset, being a residential flat at Mumbai, as short-term capital asset and accordingly, computing and assessing short-term capital gains at Rs. 2,11,44,607, as against long-term capital gains of Rs. 1,93,94,645 declared by the appellant in her return of income.
The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in treating the residential flat at Mumbai as a short-term capital asset inasmuch as he has not appreciated the facts of the case in its entirety and hence, the action of the Assessing Officer is bad in law and needs to be reversed.
The appellant further, contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in treating the residential flat at Mumbai as a short-term capital asset inasmuch as the appellant has held the said residential flat for more than 36 months and hence, is a long-term capital asset and any capital gains on sale thereof shall necessarily give rise to long-term capital gains and therefore, the action of the Assessing Officer is bad in law and needs to be reversed.
The appellant craves to add to, alter or amend the aforestated ground of appeal.
8. During the course of hearing before us, the Authorized Representative (AR) of the assessee reiterated the factual matrix and drew our attention to the paper book filed and specifically relied upon the following documents:
i.Sale Agreement dated 06.09.1988, along with relevant enclosures, evidencing the original acquisition of the residential flat by the assessee, placed at pages 1 to 38 of the paper book;
ii.Agreement for purchase of flat in New Sarvottam Co-operative Housing Society Ltd. dated 27.12.2010, executed pursuant to the redevelopment of the society, placed at pages 39 to 127;
iii.Sale Agreement dated 31.12.2013, along with relevant enclosures, evidencing transfer of the redeveloped flat, placed at pages 128 to 222;
iv.Possession letter dated 22.11.2010 issued by M/s Kumar Builders, placed at page 223, which, according to the assessee, evidences delivery of possession of the redeveloped flat; and
v.Allotment letter dated 24.11.2006, placed at page 224, issued by the society pursuant to the redevelopment arrangement.
9. The learned AR further placed reliance on the judgment of the Hon’ble Bombay High Court in Pr. CIT v. Vembu Vaidyanathan ITR 248 (Bombay), and submitted that in the said decision, the Hon’ble jurisdictional High Court, after taking note of CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993, has categorically held that for the purpose of computation of capital gains, the date of allotment of a residential unit under a construction scheme is to be regarded as the date of acquisition, and not the date of execution of the agreement or the date of taking physical possession.
10. The learned Departmental Representative, on the other hand, strongly supported the orders passed by the Assessing Officer as well as the CIT(A).The learned DR further pointed out that, as noted in the assessment order and reiterated in the appellate order, the assessee had paid consideration towards the additional area of 161 sq. ft. in installment and the last installment of Rs. 99,660/- was admittedly paid by the assessee on 01.04.2013. According to the learned DR, this fact clearly establishes that the acquisition of rights in respect of the additional constructed area was completed only on 01.04.2013 and, therefore, the holding period could not be reckoned from an earlier date as claimed by the assessee.
11. We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the CIT(A), and examined the material placed before us in the paper book to which our attention was drawn during the course of hearing.
12. The short controversy before us is with regard to the determination of the holding period of the residential flat sold by the assessee on 31.12.2013 and, consequentially, whether the capital gains arising there from are chargeable as long-term capital gains or short-term capital gains.
13. We reiterate the material facts, which are largely undisputed, as under:
(i)The assessee was the owner of a residential flat in New Sarvottam Co-operative Housing Society Ltd., Mumbai, originally acquired in the year 1988.
(ii)Pursuant to redevelopment of the society, a Development Agreement dated 02.02.2006 was entered into between the society and M/s Kumar Builders, whereby the members, including the assessee, became entitled to a new flat in the redeveloped building with enhanced area.
(iii)An allotment letter dated 24.11.2006 was issued by the society in favour of the assessee, allotting Flat No. B-1008 in the redeveloped building.
(iv)A Personal Alternate Accommodation Agreement dated 27.12.2010 was entered into between the assessee and the builder, pursuant to which the assessee became entitled to the redeveloped flat admeasuring 900 sq. ft., comprising exchange area and additional purchased area of 161 sq. ft.
(v)The assessee claims to have received possession of the redeveloped flat vide possession letter dated 22.11.2010 issued by the builder.
(vi)The flat was ultimately sold by the assessee vide registered sale agreement dated 31.12.2013.
(vii)The Assessing Officer treated the capital gains arising from the sale of the flat as short-term capital gains, primarily on the ground that the building was completed only in May 2012, that the last instalment towards the additional area was paid on 01.04.2013, and that the possession prior thereto was improbable.
(viii)The CIT(A), after calling for a remand report and considering the reply of the builder under section 133(6), upheld the action of the Assessing Officer and confirmed the addition of Rs. 2,11,44,607/- as short-term capital gains.
14. At this stage, it is relevant to note that the issue relating to the date of acquisition and commencement of holding period in cases of allotment of flats under development or construction schemes is no longer res integra. The Hon’ble Bombay High Court in Vembu Vaidyanathan (supra), after considering CBDT Circular Nos. 471 and 672, has categorically held that:
“In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property.” (Para-5)
It was also noted in para 4 that “the allottee gets title to the property on the issue of allotment letter and the payment of installments was only follow-up action and taking the delivery of possession is only a formality.”
15. The Hon’ble High Court further held that where the allotment scheme is akin to the DDA scheme, the date of allotment is to be treated as the date of acquisition for the purpose of computing the holding period under the Income-tax Act. The aforesaid decision is a binding jurisdictional precedent and squarely applicable to the facts of the present case.
16. In the present case, the record clearly shows that the assessee’s rights in the redeveloped flat crystallized pursuant to the allotment letter dated 24.11.2006 and the agreement dated 27.12.2010.The redevelopment arrangement was not a fresh purchase in isolation but was a continuation of ownership rights flowing from the original flat held since 1988.Mere payment of installments towards additional area, including the last installment paid on 01.04.2013, does not postpone the date of acquisition, as held by the Hon’ble jurisdictional High Court. The emphasis placed by the lower authorities on the date of completion of construction or alleged improbability of possession prior to May 2012 cannot override the settled legal position governing allotment-based acquisition.
17. In view of the binding ratio laid down in Vembu Vaidyanathan (supra), the approach adopted by the Assessing Officer and affirmed by the CIT(A) in reckoning the holding period from May 2012 or from the date of last instalment is legally unsustainable.
18. Once the date of allotment / crystallization of rights is taken as the date of acquisition, it is evident that the assessee had held the capital asset for a period exceeding thirty-six months prior to its sale on 31.12.2013. Consequently, the asset qualifies as a long-term capital asset, and the gains arising therefrom are liable to be assessed as long-term capital gains.
19. In the light of the above discussion, we hold that the capital gains arising on sale of the residential flat are long-term capital gains and not short-term capital gains. Accordingly, the addition of Rs. 2,11,44,607/- made under the head “Short Term Capital Gain” and confirmed by the CIT(A) is hereby deleted.
20. In the result the appeal by the assessee is allowed.