Property Allotment Date is the Acquisition Date for Capital Gain Computation: ITAT Mumbai

Case Overview

Case Title: D.K. Brothers vs. Income Tax Officer (ITO)
Court: Income Tax Appellate Tribunal (ITAT), Mumbai
Appeal Number: ITA No. 2183/M/2023
Date of Judgement: November 10, 2023
Assessment Year: 2011-12

Introduction

In a pivotal ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has overturned the order issued by the National Faceless Appeal Centre (NFAC) in the case of D.K. Brothers vs. ITO. The core issue involved the computation of capital gains, specifically the determination of the acquisition date for a property, which directly impacted whether the gains were classified as long-term or short-term. This ruling reinforces the principle that the property allotment date, rather than the registration date, should be considered as the acquisition date for capital gains calculation.

Background of the Case

1. Property Details:
   • The property in question is an office premise (Office No. DC 3112) located in the Bharat Diamond Bourse, Bandra Kurla Complex, Mumbai.
   • The appellant, M/s D.K. Brothers, received an allotment letter for the property on January 28, 1992, and made payments in installments over the years until registration was completed on September 15, 2010.
2. AO’s Assessment:
   • During scrutiny, the Assessing Officer (AO) determined that the property was sold on February 8, 2011, for a consideration of ₹84,33,000.
   • The AO treated the date of registration (September 15, 2010) as the acquisition date, resulting in the computation of the gain as Short-Term Capital Gains (STCG) amounting to ₹45,49,200.
3. CIT(A) Decision:
   • The appellant challenged the AO’s decision before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the date of allotment (January 28, 1992) should be the acquisition date, qualifying the gain as a long-term capital loss (LTCL).
   • The CIT(A) upheld the AO’s findings, dismissing the appellant’s claims.
4. Appeal to ITAT:
   • Dissatisfied with the CIT(A) order, the appellant approached the ITAT, Mumbai, seeking a review of the decision.

Issues Raised

1. Acquisition Date Dispute:
   • The appellant contended that the allotment date (January 28, 1992) should be considered the acquisition date for capital gains computation.
   • The Revenue argued that the registration date (September 15, 2010) should be taken as the acquisition date.
2. Tax Treatment of Capital Gains:
   • Based on the acquisition date, the gains could either be classified as STCG (if held for less than 36 months) or long-term capital loss (if held beyond that period).
3. Applicability of Legal Precedents and Circulars:
   • The appellant relied on CBDT Circular No. 471 (dated October 15, 1986), tribunal decisions, and the Bombay High Court judgment in Pr. CIT vs. Vembu Vaidyanathan, which emphasized that the date of allotment, rather than registration, determines the acquisition date.

Arguments Presented

1. Appellant’s Contentions:
   • The acquisition date should be the allotment letter issued on January 28, 1992.
   • Payments were made in installments over several years, and the final payment was completed by September 15, 2010.
   • The appellant computed a long-term capital loss of ₹90,514 based on the allotment date.
   • Cited legal precedents and CBDT Circular No. 471 supporting their claim.
2. Revenue’s Position:
   • The Revenue maintained that the acquisition date should be the registration date (September 15, 2010), arguing that possession and ownership were finalized only upon registration.

Tribunal’s Observations

1. Established Legal Principles:
   • The ITAT highlighted that it is a settled legal principle that the date of allotment is to be considered as the acquisition date, provided the allotment is not canceled or abandoned.
   • The tribunal referred to the Bombay High Court ruling in Vembu Vaidyanathan and CBDT Circular No. 471, which support using the allotment date as the acquisition date for tax purposes.
2. Undisputed Facts:
   • The property was allotted to the appellant on January 28, 1992, for an initial payment of ₹1,87,500.
   • Payments continued in installments until the registration date on September 15, 2010.
   • The property was sold on February 8, 2011, for ₹84,33,000.
   • The AO treated the registration date as the acquisition date, leading to a classification of the gains as STCG, whereas the appellant computed LTCL using the allotment date.

Ruling and Reasoning

1. Decision on Acquisition Date:
   • The ITAT ruled that the allotment date (January 28, 1992) is the correct acquisition date for computing capital gains.
   • It held that the AO and CIT(A) erred in considering the registration date as the acquisition date.
2. Impact on Capital Gains Computation:
   • By considering the allotment date, the property qualifies as a long-term capital asset, resulting in the computation of LTCL as claimed by the appellant.
   • The ITAT deleted the addition of ₹45,49,200 made by the AO under STCG.

Conclusion

The ITAT Mumbai allowed the appeal filed by D.K. Brothers, setting aside the NFAC order and directing the AO to recompute the capital gains using the allotment date (January 28, 1992) as the acquisition date. This decision underscores the importance of adhering to established legal principles and provides clarity for similar cases involving the computation of capital gains.

Order Pronouncement

Result: Appeal allowed.
Date of Pronouncement: November 10, 2023.

Nilay Raj

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