Long Term Capital Gains - Period

It will be long term capital gain. There are multiple opinions in the matter as court decisions support the date of booking as the date on which rights were created in the property. However, in this case you even got sale deed registered in May 2006, the transaction can safely be treated as resulting in long term capital gain.

Hello Sir,

Thanks for a prompt and terse reply to my query. I will be grateful if you can provide me with some pointers to court decisions you mentioned in your reply.

Thanks

Amit Agrawal

any agreement between the parties to sell a property before getting it registered is 'agreement to sell.' In this connection, Sec.2(47)(v) says

" ...............any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A²⁷ of the Transfer of Property Act, 1882 (4 of 1882) ;.........."

So the property get transferred only on possession. In this connection, the follwoing case laws may be of help:

1. Immovable property when documents are registered: Title to immovable assets will not pass till conveyance deed is executed and registered --Alapati Vendataramiah v. Cit [1965] 57 ITR 185 (SC).

2. Immovable propety when doc. r not registered.-: Even if documents are not registredd but the follwoing conditions of Sec.53A for Transferof property act r satisfied, ownership inthe property is 'transferred" -

(a) there shud b a contract in writing:

(b) the transferee has paid consideration or is willing to perform his partof the contract: and

(c) the transferee shud hve taken possession of the propperty.

Posession is not a pre-requisite for transfer of asset and that is exactly the reason why even posession without registered deed but coupled with doctorine of part perfomance u/s 53A has also been trated as transfer under the income tax act to plug this loophole.

The I T Act recognises extinguishment/ creation of any right as transfer and such rights in any immovable property (whether tenancy, leasehold, easement, posession etc) have been held as capital asset. Therefore once a flat is booked and allotment is made by the developer acknowledging the booking, the allotment is final until the same is cancelled. The allotee thereupon gets title to the property on the issuance of allotment letter and the payment of instalments is only a follow-up action and delivery of posession is only a formality

Therefore the substantial rights are created in the asset upon allotment and in the instant case even the agreement to sale has been registered granting irrevertable title in the property. Therefore the transfer results in long term capital gains as more than 3 years have elapsed since the registered sale agreement.

By the way Mr Ashish, an Agreement to Sale is also required to be registered under registration act. The stamp duty leviable is different in different states. In Maharashtra, an agreement to sale for under construction flat needs to be registered with full value of stamp duty leviable on agreement value/ market value. In some cases posession comes even after delay of 5-6 years but in the interim the same flat is sometimes sold many times inviting fresh stamp duty on each occasion. The capital gains tax leviable in such cases depends upon the period between the purchase and sale agreement dates.

Ref CIT vs Hilla J Wadia 69 Taxman 114 (Bom)

There are decisions of Gujarat High Court also on this issue.

Dear Mr Vineet

I have a similar case here and request your opinion . I have a question regarding the date of purchase for a cooperative society appartment to calculate capital gain . Is it from the date of possesion or from the date of receiving the share certificate or receipts of payment made because in my case the payment was made in 2003 and the appartment was ready in 2005 but the possession happened in Oct 2008. If I sell the appartment , will I be subject to short term capital gain or can I take the benefit of long term capital gain .

Dear Mr Preet

I understand your society was formed in 2003 and you have made the payment in 2003 itself. Then as held by many court decisions including the Hilla Wadia case cited earlier, posession is not material in for purpose of period of holding of asset.

Please refer to Gujarat High Court in the case of Anilaben Upendra Shah (262 ITR 657), which squarely covers your case.

The facts in this case were that on September 6, 1979, by depositing a sum of Rs 5,000 which included entrance fees of Rs 55 and share capital of Rs 250, the assessee had become a member of a co-operative housing society. A flat was allotted to her by the society in November 1979. The total cost of the flat after excluding the loan amounting to Rs 30,000 came to Rs 67,757.

Possession of the flat was however delivered by the said society to the assessee only in October 1981. Thereafter, the assessee entered into an agreement to sell the flat on October 8, 1982, and in performance of such contract the assessee sold the same on December 4, 1982, for Rs 1,40,000. The Assessing Officer subjected an amount of Rs. 42,243 to tax as short-term capital gains.

The Commissioner (Appeals) held that the date of acquisition of the flat was the date of the agreement and not the date of occupation of the flat and directed the Assessing Officer to treat the capital gains as long term and grant deduction under section 80-T of the Act to the assessee. The Tribunal confirmed the view of the Commissioner (Appeals).

On a reference, the Gujarat High Court observed that the assessee had held the shares and allotment of the flat in the co-operative housing society for a period of more than 36 months. Accordingly, the capital gain in question was rightly held by the Tribunal to be long-term in nature.

Hope this resolves your query.

Thank you Mr Vineet for your response however in my case the allotment also happened in 2008  which was followed by possession in the same year. Would this judgement still apply ?

Your case may be a bit difficult to defend, still the fact that you have held shares of society for more than 3 years may come to your rescue.

I would suggest, wait for another year to let this property be held for more than 3 years post allotment. However, watch out for not Direct Tax Code which will be applicable from 1-4-2011. If everything goes as proposed, there will be no relief for Long term capital gains under new tax regime except indexation benefit. If that happens, it won't make any difference if sell the property now or in 2011 except the likely appreciation in current market.

Dear Mr Vineet

This is in response to your reply on 29th May 2010. First of all , many thanks for guiding me in making a rational decision . I am now seeling the property after three years from possesion and will be claiming long term capital gain . My question is "To what extent is the cost of refurbishing the house/ maintaince " be added to the total cost to reduce my capital gain .

Also , while calculating  indexation benefit  , Is there any benefit given on the interest paid on loan or not ?

Your response will definetley help me reducing my capital gain as I dont plan to reinvest the gain in another property or buy 54EC bonds

regards

Preetinder