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Issues: Whether the period of holding of a residential flat for capital gains purposes commenced from the date of the agreement to purchase or only from the date of physical possession, and whether the gain on its sale was long-term capital gain or short-term capital gain.
Analysis: The agreement to purchase created valuable and enforceable rights in favour of the assessee, and the right in the property arose when the agreement was executed and payments began. For the purposes of sections 2(47), 2(14), 2(42A) and 48 of the Income-tax Act, physical possession was not ative of holding where the assessee had already acquired rights in the flat. The date of possession was only a follow-up formality. The Tribunal agreed with the first appellate authority that the period of holding had to be computed from the purchase agreement dated 18.12.2006 and not from the possession date of 19.01.2011.
Conclusion: The gain on sale of the flat was long-term capital gain, and the assessee was entitled to indexation from the date of acquisition under the purchase agreement. The Revenue's challenge failed.
Ratio Decidendi: For capital gains purposes, the period of holding of an immovable property begins when the assessee acquires enforceable rights under an allotment or purchase agreement, and not merely on taking physical possession.
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