Holding period from allotment, section 50 limits, and share investment treatment upheld for capital gains purposes.

For capital gains purposes, the holding period starts when the assessee acquires an enforceable right in the property through an allotment letter, not from later conveyance or registration; on that basis, the properties were treated as long-term capital assets and section 54/54F relief was available. The deeming fiction in section 50 applies only to capital gains computation for depreciable assets and does not bar exemption under section 54F, so prior depreciation did not defeat the claim. Share transactions were assessed on the investment-versus-trading distinction: the assessee's conduct and accounting supported investment treatment, and only very short-holding transactions were treated as business income.

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Issues: (i) Whether the period of holding for determining whether the properties were long-term or short-term capital assets was to be computed from the date of allotment letter or from the date of purchase deed or registration, and whether deduction under section 54/54F was available. (ii) Whether section 50, in the case of a depreciable asset, barred the assessee from claiming exemption under section 54F. (iii) Whether the profits from share transactions were assessable as business income or under the head capital gains.

Issue (i): Whether the period of holding for determining whether the properties were long-term or short-term capital assets was to be computed from the date of allotment letter or from the date of purchase deed or registration, and whether deduction under section 54/54F was available.

Analysis: The applicable test under section 2(42A) is the period for which the capital asset is "held". The Tribunal followed the consistent view of High Courts that, where an allotment letter confers an enforceable right in the property, the holding period begins from the date of allotment and not from the later execution or registration of the conveyance document. The distinction drawn by the Revenue on the basis of legal title was held to be irrelevant for determining the holding period under the capital gains provisions. Once the allotment dates were adopted, the properties were held for more than 36 months and the gains qualified as long-term capital gains. On that basis, the assessee satisfied the conditions for deduction under section 54/54F in respect of the residential investment.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether section 50, in the case of a depreciable asset, barred the assessee from claiming exemption under section 54F.

Analysis: The Tribunal applied the settled principle that the deeming fiction in section 50 is confined to the mode of computation of capital gains and does not convert the asset itself into a short-term capital asset for all purposes. The restriction created by section 50 was held not to extend to exemption provisions such as section 54F. Since the assessee had otherwise fulfilled the statutory conditions for exemption, the fact that depreciation had been claimed on the asset did not defeat the exemption claim.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the profits from share transactions were assessable as business income or under the head capital gains.

Analysis: The Tribunal accepted the distinction between an investment portfolio and a trading portfolio. It noted that volume and frequency of transactions are relevant factors but are not ative by themselves. The assessee's conduct and accounting treatment supported the claim that the shares were held as investments, and the Tribunal found no sufficient basis to disturb the CIT(A)'s view that only very short holding transactions could be treated as business income while the balance retained capital-gains character. The Revenue failed to show any compelling reason to treat the entire share activity as business.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge failed on all substantive issues, and the assessee retained the benefit of long-term capital gains treatment, exemption under section 54/54F, and capital-gains character for the share transactions to the extent upheld by the first appellate authority.

Ratio Decidendi: For capital gains purposes, the period of holding is computed from the date on which the assessee acquires an enforceable right in the property through allotment, and the deeming fiction under section 50 is confined to computation and does not curtail independent exemption provisions.

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