INSURANCE: Flat's LTCG tax counts final payment date

A taxpayer booked a flat for a total consideration of Rs 83,30,000 by paying Rs 11 lakh on March 10, 2008 and received allotment on the same date. The balance amount of Rs 29 lakh was paid during the period March to June, with the final payment being made on June 25, 2008. However, the purchase agreement dated September 29, 2009 was registered only on September 30, 2009 due to the service compulsions of the taxpayer. The total cost of the property was Rs 87.21 lakh, including stamp duty and registration fees of Rs 4.27 lakh.

The building remained under construction and the taxpayer sold the right to acquire the said flat vide an agreement to sell dated July 29, 2011, which was in turn registered on August 2. The taxpayer calculated the holding period of the right in the flat as more than three years (which is the period between June 25, 2008 being the date of final payment or March 10, 2008 being the date of allotment and August 2, 2011) and determined capital gains on sale of the said right as a loss of Rs 1,57,414, after indexation of the cost paid for the said flat. The taxpayer filed his return of income with taxable income as Rs 68.77 lakh comprising income from salary, capital gains and other sources for the said assessment year.

During assessment, the tax officer objected to the said calculations and held that the difference between the date of sale (August 2, 2011) and date of registration of the purchase agreement (September 30, 2009) being less than three years, the right to flat is a short-term capital asset and gains should be taxed as short-term capital gains. The tax officer also observed that the flat, being under-construction, as on the date of sale, the taxpayer would not be eligible for cost indexation too. The tax officer, thus, assessed the total income of the tax payer at Rs 1.8 crore.

At the first appellate stage, the authority observed that the right in the said flat was allotted on March 10, 2008 and the entire payment was made by June 20, 2008. The payment dates were validated by verifying the taxpayer's bank statements. The authority held that the entire amount of consideration was paid vide banking channels by June 26, 2008 and it was only due to his service compulsions that the registration was delayed to September 2009. In view of the same, the authority observed that the taxpayer held the rights in the said flat for a period of more than three years and, hence, his claim in the return of income is correct.

The tax department preferred a second appeal before the tax tribunal. During the course of hearings, after due verification of the facts, the tribunal observed that the taxpayer had acquired an identifiable right in a specific property vide the allotment letter and also made the full payment by June 25, 2008. The registration of purchase documents, in such a case, was to convey ownership rights to the taxpayer, which already existed in the taxpayer's favour by way of the allotment letter. In view of these facts, the tribunal agreed with the taxpayer's claim for treating the right in the said flat as long-term capital asset.

The writer is a Sebi-registered investment adviser