MRS. URMILA JAGDISH MEHTA,MUMBAI vs. ACIT, CIRCLE 33(3), MUMBAI

On the above basis, the Assessing Officer concluded that the holding period of the flat was less than 36 months, treated the asset as a short-term capital asset, denied the exemption claimed under section 54 and assessed the gains as short-term capital gains.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated that she had received possession of the redeveloped flat in the year 2010 and, therefore, the holding period exceeded 36 months, rendering the gains as long-term capital gains. The assessee sought to file additional evidence, a possession letter dated 22.11.2010 allegedly issued by M/s Kumar Builders, and an allotment/intimation letter dated 24.11.2006 issued by the society. The CIT(A) admitted the additional evidence and called for a remand report from the Assessing Officer. In the remand report, the Assessing Officer objected to the admission of additional evidence under Rule 46A and stated that sufficient opportunity had been provided to the assessee during assessment proceedings. During the remand proceedings, a notice under section 133(6) was issued to M/s Kumar Builders for verification Mrs. Urmila Jagdish Mehta of the date of possession. On merits, it was reported by the Assessing Officer that M/s Kumar Builders had stated that Flat No. B-1008 was completed in May 2012, possession was given to the assessee thereafter for fit-out purposes, and the occupation certificate had not been received as on the date of enquiry. The Assessing Officer also noted that the letter of allotment from the Society has no relevance in deciding the date of possession. The Assessing Officer expressed doubts regarding the possession letter dated 22.11.2010, holding that possession within a few days of the redevelopment agreement was improbable and inconsistent with the contractual terms.

After considering the assessee’s rejoinder, the remand report and the material on record, the CIT(A) held that allotment or society letters do not confer possession, physical possession could not have been received prior to completion of the building in May 2012, and the holding period of the flat commenced only from May 2012.The CIT(A) relied upon various judicial precedents to hold that physical possession is determinative, and concluded that the flat was held for less than 36 months prior to its sale on 31.12.2013.Accordingly, the CIT(A) confirmed the action of the Assessing Officer in treating the gains as short-term capital gains and upheld the addition of Rs. 2,11,44,607/-. The appeal of the assessee was dismissed.

Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising following grounds:

The learned AR further placed reliance on the judgment of the Hon’ble Bombay High Court in Principal Commissioner of Income-tax-3, Mumbai v. Vembu Vaidyanathan reported in [2019] 413 ITR 248 (Bom.), and submitted that in the said decision, the Hon’ble jurisdictional High Court, after taking note of CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993, has categorically held that for the purpose of computation of capital gains, the date of allotment of a residential unit under a construction scheme is to be regarded as the date of acquisition, and not the date of execution of the agreement or the date of taking physical possession.

The learned Departmental Representative, on the other hand, strongly supported the orders passed by the Assessing Officer as well as the CIT(A).The learned DR further pointed out that, as noted in the assessment order and reiterated in the appellate order, the assessee had paid consideration towards the additional area of 161 sq. ft. in installment and the last installment of Rs. 99,660/- was admittedly paid by the assessee Mrs. Urmila Jagdish Mehta on 01.04.2013. According to the learned DR, this fact clearly establishes that the acquisition of rights in respect of the additional constructed area was completed only on 01.04.2013 and, therefore, the holding period could not be reckoned from an earlier date as claimed by the assessee.

We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the CIT(A), and examined the material placed before us in the paper book to which our attention was drawn during the course of hearing.

The short controversy before us is with regard to the determination of the holding period of the residential flat sold by the assessee on 31.12.2013 and, consequentially, whether the capital gains arising there from are chargeable as long-term capital gains or short-term capital gains.

We reiterate the material facts, which are largely undisputed, as under: (i) The assessee was the owner of a residential flat in New Sarvottam Co-operative Housing Society Ltd., Mumbai, originally acquired in the year 1988. (ii) Pursuant to redevelopment of the society, a Development Agreement dated 02.02.2006 was entered into between the society and M/s Kumar Builders, whereby the members, including the assessee, became entitled to a new flat in the redeveloped building with enhanced area.

At this stage, it is relevant to note that the issue relating to the date of acquisition and commencement of holding period in cases of allotment of flats under development or construction schemes is no longer res integra. The Hon’ble Bombay High Court in PCIT v. Vembu Vaidyanathan [2019] 413 ITR 248 (Bom.), after considering CBDT Circular Nos. 471 and 672, has categorically held that:

The Hon’ble High Court further held that where the allotment scheme is akin to the DDA scheme, the date of allotment is to be treated as the date of acquisition for the purpose of computing the holding period under the Income-tax Act. The aforesaid decision is a binding jurisdictional precedent and squarely applicable to the facts of the present case.

In the present case, the record clearly shows that the assessee’s rights in the redeveloped flat crystallized pursuant to the allotment letter dated 24.11.2006 and the agreement dated 27.12.2010.The redevelopment arrangement was not a fresh purchase in isolation but was a continuation of ownership rights flowing from the original flat held since 1988.Mere payment of installments towards additional area, including the last installment paid on 01.04.2013, does not postpone the date of acquisition, as held by the Hon’ble jurisdictional High Court. The emphasis placed by the lower authorities on the date of completion of construction or alleged improbability of possession Mrs. Urmila Jagdish Mehta prior to May 2012 cannot override the settled legal position governing allotment-based acquisition.

In view of the binding ratio laid down in Vembu Vaidyanathan (supra), the approach adopted by the Assessing Officer and affirmed by the CIT(A) in reckoning the holding period from May 2012 or from the date of last instalment is legally unsustainable.

Once the date of allotment / crystallization of rights is taken as the date of acquisition, it is evident that the assessee had held the capital asset for a period exceeding thirty-six months prior to its sale on 31.12.2013. Consequently, the asset qualifies as a long-term capital asset, and the gains arising therefrom are liable to be assessed as long-term capital gains.

In the light of the above discussion, we hold that the capital gains arising on sale of the residential flat are long-term capital gains and not short-term capital gains. Accordingly, the addition of Rs. 2,11,44,607/- made under the head “Short Term Capital Gain” and confirmed by the CIT(A) is hereby deleted.

In the result the appeal by the assessee is allowed. Order pronounced in the open court on 29.12.2025.