Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether A Long Term Or Short Term Capital Gain On Conversion Of Right Into A Flat?

QUERY: An individual booked a flat in a building in April 2012, allotted flat no. A-1. Building is completed in March 2015 and possession given. The flat is resold in May 2016 whether it will be long term capital gain or short term capital gain
ANSWER: It is a long term capital gain as per Punjab and Haryana High Court in Mrs. Madhu Kaul v. CIT [363 ITR 54]. In that case, the assessee was allotted a flat on June 07, 1986 conveyed on June 30, 1986. The assessee paid the first installment on July 04, 1986. The flat was later identified and delivery of possession was given on November 30, 1988. The assessee sold the flat on July 05, 1989. The assessee’s claim for treating Rs. 2,38,609/- received from sale of a flat as long term capital gain was rejected treating it as short term capital gains. This was confirmed by the Commissioner (Appeals). The Tribunal held that as a specific flat was allotted to the assessee, on November 30, 1988, the allotment letter or payment of the first installment did not entitle the assessee to claim that the gains were long term capital gain.

However on appeal, the High Court held that the flat was allotted to the assessee on June 07, 1986, by a letter conveyed to the assessee on June 30, 1986. The assessee paid the first installment on July 04, 1986 thereby conferring a right upon the assessee to hold a flat, which was later identified and possession was delivered on a later date. The mere fact that possession was delivered later did not detract from the fact that the allottee was conferred a right to hold the property on issuance of an allotment letter. The payment of the balance installments, identification of a particular flat and delivery of possession were consequential acts, that related back to and arose from the right conferred by the allotment letter.
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