Holding period under hire purchase starts with possession, so flats were treated as long-term capital assets for tax purposes.

For section 2(42A) purposes, the holding period of flats acquired under a hire purchase arrangement is counted from the date possession is handed over, not from the later date of execution or registration of the conveyance deed. Where the agreement confers possession and contemplates transfer of ownership on payment of dues, the arrangement operates as a transfer in part performance under section 53A of the Transfer of Property Act and within section 2(47) of the Income-tax Act. On that basis, the flats were treated as long-term capital assets, and the surplus on sale was assessable as long-term capital gain; the short-term capital gain addition was unsustainable.

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Issues: Whether, for the purpose of section 2(42A) of the Income-tax Act, 1961, the period of holding of the flats was to be computed from the date of possession under the hire purchase arrangement or from the date of execution of the conveyance deed, so as to determine whether the capital gain was long-term or short-term.

Analysis: The agreement, though described as a hire purchase arrangement, conferred possession on the assessee and contemplated transfer of ownership on payment of dues. The possession was handed over in pursuance of the contract, and the terms showed that the assessee was placed in possession in part performance of the arrangement. On that basis, the transaction fell within the ambit of section 53A of the Transfer of Property Act, 1882, and therefore amounted to a transfer within section 2(47) of the Income-tax Act, 1961. The holding period had to be reckoned from the date of possession and not from the later date of registration of the conveyance deed. Circular No. 471, though referred to, supported the assessee's case on the broader principle that possession under a final allotment can mark the beginning of holding.

Conclusion: The flats were long-term capital assets, and the surplus on sale was assessable as long-term capital gain. The addition as short-term capital gain was not sustainable.

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