The allotment letter. Two CBDT circulars — 471 of 1986 for the D.D.A. Self-Financing Scheme and 672 of 1993 extending it to co-operative societies and other institutions — record that the allottee gets title on the issue of the allotment letter, with instalments and possession following as formalities. The Bombay High Court applied both in PCIT v. Vembu Vaidyanathan to fix the date of acquisition at the allotment letter. The work in the argument is showing that your scheme is similar to the one described in para 2 of Circular 471.
The pattern is the same in almost every builder purchase. A booking or allotment letter comes first, sometimes years before anything else. An agreement for sale is executed later, often when the project is far enough along or when the bank insists. Possession comes later still, and in many cases a conveyance to the society never happens at all. When the flat is sold, the department picks the latest of those dates it can and the gain turns short-term.
The answer is two Board circulars, and they matter more than any single judgment because an Assessing Officer cannot take a view contrary to a circular that is in the assessee's favour.
Circular No. 471 dated 15 October 1986 was issued about the Self-Financing Scheme of the D.D.A., and the question it answered was whether taking a flat under that scheme was a purchase or a construction for ss.54 and 54F. In answering it, the Board set out why the allottee's position under such a scheme is an owner's position: "Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality." The Board concluded that such cases are to be treated as cases of construction, which gives the longer three-year reinvestment window.
Circular No. 672 dated 16 December 1993 answered the obvious next question. Representations had been made that allotments by co-operative societies and other institutions on similar terms should get the same treatment, and the Board agreed: "if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No. 471, dated 15-10-1986 (Sl. No. 428), such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act." That is the clause that carries the concession out of the D.D.A. and into ordinary builder and society allotments.
In PCIT v. Vembu Vaidyanathan the Bombay High Court took the further step. The assessee had an allotment letter dated 31 December 2004 and an agreement dated 17 May 2008, and the Assessing Officer said acquisition happened in 2008. The Court set out both circulars, found no material difference between the assessee's scheme and the D.D.A. scheme, and held: "In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property." The Revenue's appeal was dismissed and the gain remained long-term.
Be clear about the step the Court took, because the department will attack it. The circulars are on their face about whether an allotment is 'construction' for ss.54 and 54F. They are not, in terms, about holding period. What the Court did was take the Board's own description of the allottee's position — title on the allotment letter, instalments and possession as follow-up — and use it to answer a different question, the date of acquisition. That is a sound reading, and it is what a taxguru survey of the question records every reported decision on the point as doing, including Vinod Kumar Jain v. CIT (344 ITR 501) in the Punjab and Haryana High Court, Madhu Kaul v. CIT in the same Court, and the Mumbai and Delhi tribunal decisions in ACIT v. Keyur Hemant Shah, Jaimal K Shah and Praveen Gupta v. ACIT. But it is a step, and it is worth arguing rather than assuming.
Everything then turns on the character of the allotment. Para 2 of Circular 471 is the checklist: the letter issues on payment of the first instalment, the allotment is final unless cancelled or withdrawn from, and cancellation is only in exceptional circumstances. An allotment that is expressly provisional, conditional on a draw, or freely revocable by the builder does not answer that description, and the concession should not be assumed for it.
This entry answers the start date only. How long the holding period has to be before the asset is long-term, and how that threshold has changed over the years for immovable property, is fixed by the definition of a short-term capital asset in the Act; the text of that definition was not fetched for this entry, so check it for the year in question before you compute anything.
The difference between the two dates is usually the difference between a long-term gain and a short-term one, and with it the rate, the indexed cost and whether s.54 or s.54F is available at all. Because the point rests on Board circulars, which bind the officer, it is an argument to put on the record before the Assessing Officer rather than to keep back for appeal.
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We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
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