Allotment date as acquisition date for booked flats can determine long-term capital gains, deductions, and exemption eligibility.

In booked flat transactions, the allotment letter can create a capital asset, and the date of allotment may be treated as the relevant date of acquisition for determining whether the gain is long-term or short-term. Interest paid on housing loans used to acquire the flats was treated as deductible in computing capital gains under section 48. The text also notes that a section 50C addition was unsustainable where the stamp valuation did not support the declared consideration, that interior expenditure supported by invoices and cheque payments could form part of the residential investment, and that deduction under section 54F was available where the long-term capital gain and acquisition timeline satisfied the statutory requirements.

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Issues: (i) Whether gain on transfer of flats was long-term capital gain or short-term capital gain with the date of allotment treated as the relevant date of acquisition; (ii) Whether interest paid on housing loans for acquiring the flats was deductible while computing capital gains; (iii) Whether addition under section 50C of the Income-tax Act, 1961 was justified; (iv) Whether expenditure on interiors was allowable as part of the investment in the residential property; (v) Whether deduction under section 54F of the Income-tax Act, 1961 was allowable.

Issue (i): Whether gain on transfer of flats was long-term capital gain or short-term capital gain with the date of allotment treated as the relevant date of acquisition.

Analysis: The right in the flats was held to arise on issuance of the allotment letters, and the later registration of the sale agreement was treated as only an assignment or formalisation of that pre-existing right. The reasoning treated such right as property forming part of a capital asset, and relied on the broad meaning of capital asset and transfer under the Income-tax Act, 1961, together with the CBDT circulars and judicial authority recognising allotment as the relevant point of acquisition in flat transactions.

Conclusion: The gain was held to be long-term capital gain, in favour of the assessee.

Issue (ii): Whether interest paid on housing loans for acquiring the flats was deductible while computing capital gains.

Analysis: Interest paid on borrowed funds used for acquiring the asset was treated as part of the acquisition cost or deductible expenditure in computing capital gains, since it had not been allowed under any other head and section 48 of the Income-tax Act, 1961 was read broadly enough to include such expenditure connected with acquisition of the asset.

Conclusion: The interest was held to be deductible, in favour of the assessee.

Issue (iii): Whether addition under section 50C of the Income-tax Act, 1961 was justified.

Analysis: The valuation adopted by the Stamp Valuation Authority for the relevant flats was found to support the assessee's declared consideration, and the addition was based on an incorrect presumption by applying values of different flats. The factual basis for invoking section 50C was therefore found unsustainable.

Conclusion: The addition under section 50C was deleted, in favour of the assessee.

Issue (iv): Whether expenditure on interiors was allowable as part of the investment in the residential property.

Analysis: The payments for interior work were supported by cheque payments, vendor details and invoices, and the expenditure was treated as necessary to make the apartment usable as a residence. On that basis, the expenditure was regarded as part of the investment in the residential property.

Conclusion: The interior expenditure was held allowable, in favour of the assessee.

Issue (v): Whether deduction under section 54F of the Income-tax Act, 1961 was allowable.

Analysis: Since the capital gain was held to be long-term and the dates of allotment and purchase brought the transaction within the statutory period, the assessee was found entitled to the exemption. The issue was treated as supported by the same reasoning governing the acquisition date in flat transactions.

Conclusion: The deduction under section 54F was held allowable, in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on all substantive grounds and the assessee's treatment of the transaction and related deductions was sustained.

Ratio Decidendi: In the context of booked flats, the allotment letter can create a capital asset and the relevant acquisition date for capital gains and related exemption claims is the date of allotment, not the later registration of the sale agreement.

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