SUNSHINE EXPORTS DIAMONDS PVT LTD,MUMBAI vs. DCIT, CIRCLE 5(3)(1), MUMBAI

This appeal filed by the assessee is directed against the order dated 30.06.2025 passed by the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi for the assessment year 2013–14 arising from the intimation issued under section 143(3) of the Income-tax Act, 1961 (in short “the Act”).

The brief facts of the case are that the assessee is engaged in the business of trading and manufacturing of diamonds and during the year under consideration sold office premises situated at Bharat Diamond Bourse, Bandra Kurla Complex, Mumbai for a consideration of Rs.3,86,68,674/-. The assessee computed the capital gain by treating the asset as Long-Term Capital Asset by taking the date of acquisition as financial year 1991-92 and claimed indexed cost accordingly, resulting in Long-Term Capital Loss.

It is noticed that the assessee had applied for allotment of office premises at Bharat Diamond Bourse and was initially allotted 750 sq. ft. 2

It is further noted that Bharat Diamond Bourse, in pursuance of the said allotments, issued allotment of equity shares and occupancy certificate referring to Application No. 3542 and granted premises bearing No. BC-3030 admeasuring 1117 sq. ft. carpet area equivalent to 1595 sq. ft. saleable area. The lease deed in respect of the said premises was registered on 21.09.2010, and possession was also stated to have been granted in the financial year 2010-11.

The Assessing Officer observed that the allotment letter issued in 1991-92 was only provisional in nature and the allotment letter itself clearly stated that it does not constitute a firm allotment and is only a letter of intent. The Assessing Officer further noted that no registered agreement existed till financial year 2009-10 and the legal ownership rights were crystallized only upon execution and registration of documents in September 2010. Accordingly, the Assessing Officer held that the holding period is to be reckoned from financial year 2010-11 and since the property was sold on 02.04.2012, the same was held for less than 36 months and therefore the gain was treated as Short-Term Capital Gain.

The Ld. CIT(A), after considering the submissions of the assessee, confirmed the action of the Assessing Officer by holding that the allotment letter issued in 1992 was merely a letter of intent and did not create any enforceable right in the property and that the ownership

The Ld. Authorised Representative reiterated the submissions made before the lower authorities and submitted that the assessee had acquired rights in the property on issuance of allotment letter in 1991- 92 and therefore the holding period should be reckoned from that date. The Ld. AR relied upon the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom) dated 22.01.2019, the decision of the ITAT Mumbai in the case of Sumit Export vs ACIT in ITA No.645/Mum/2022 dated 10.11.2022, the decision of the Tribunal in the case of M/s Suresh Brothers in ITA No. 553/Mum/2016 dated 18.11.2019 and other decisions.

The Ld. Departmental Representative, on the other hand, supported the orders of the lower authorities and submitted that the allotment letter itself clearly states that it is only a letter of intent and does not create any right in the property. It was further submitted that the ownership of the property was crystallized only in the year 2010 upon registration of documents and grant of possession and therefore the gain has been rightly treated as Short-Term Capital Gain.

We have heard the rival submissions and perused the material available on record. The issue for consideration is whether the assessee can be said to have acquired the property in the year 1991-92 on the basis of initial allotment or whether the acquisition is to be reckoned from the date of registration of documents and grant of possession in the year 2010. The allotment letter issued is reproduced hereunder for the sake of brevity:-

Further, the allotment letter dated 28.01.1992 clearly states that it does not constitute a firm allotment of premises and is only a letter of intent. Thus, the said allotment letter did not confer any enforceable right in the property in favour of the assessee. It is also not in dispute that no registered agreement was executed till financial year 2009-10. Under the provisions of the Transfer of Property Act, transfer of immovable property can be effected only by a registered instrument and in the absence of such registration, no legal title can be said to have been transferred.

The assessee has relied upon the decision of the Hon’ble Bombay High Court in the case of Vembu Vaidyanathan (supra). In our considered view, the said decision is distinguishable on facts, as in that case the allotment was final and conferred a definite right in the property, whereas in the present case the allotment itself is provisional and specifically states that no right is created.

Similarly, the decision of the Tribunal in the case of Sumit Export vs ACIT is also distinguishable as in that case the allotment resulted in crystallization of rights in the property, whereas in the present case the allotment remained provisional and the final rights were crystallized only in the year 2010.

The facts of the present case are materially distinguishable. In the present case, there was no final and binding allotment in the year 1991-92. The allotment continued to remain provisional and subject to various conditions and the area itself underwent changes over a period of time through multiple allotments. The final crystallization of rights took place only in the year 2010 upon execution of lease deed, registration of documents and grant of possession. Therefore, even applying the ratio laid down in the case of M/s Suresh Brothers (supra), the relevant date for determining the holding period would be the date of final and binding allotment, which in the present case falls in the year 2010 and not in 1991-92 as claimed by the assessee.

In view of the above facts and judicial position, we are of the considered view that the assessee acquired enforceable rights in the property only in the financial year 2010-11 upon execution and registration of documents. Since the property was sold on 02.04.2012, the holding period is less than 36 months and therefore the asset is to be treated as Short-Term Capital Asset and the gain arising therefrom is liable to be taxed as Short-Term Capital Gain.

In the result, the appeal filed by the assessee is dismissed.