Holding period of property commences from the date of allotment letter

MUMBAI: From when can you calculate the holding period of your real estate asset, from the date the asset was sold or when you got the allotment letter? According to a recent ruling it would be calculated from the date when you received the allotment letter.

The Mumbai Income Tax Appellate Tribunal recently held that the holding period shall be computed from the date of allotment letter and not from the date when sale agreement was registered.

“During the course of assessment proceedings it was noted by the Assessing Officer that though allotment of the said office was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement and accordingly it was held that the said asset was ‘short-term capital asset’. Consequently, the resultant gain was assessed as short-term capital gain,” a concept note from U. S. Gandhi & Co, a tax consultancy said.

The issue is crucial as this would help calculate the capital gains tax on the real estate property. According to the current tax laws capital gains is levied if the real estate property is sold within two years since its purchase.

“On perusal of definition of section 2(42A) of the Income Tax Act, 1961 (“The Act”), the expression used is “held” and not “owned”. Thus, for determining capital gain the Legislature is concerned with the holding period on de facto basis and not absolute legal ownership. The court in the case of CIT vs Suresh Rao has briefly defined the expression held where a similar issue was encountered. Also judgements of various high courts state that holding period should be computed from the date of allotment letter,” the concept note added.

Credits ET Realty

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