Allotment letter rights in a flat can form a capital asset, making later transfer eligible for long-term capital gains treatment.

An allottee acquires enforceable rights in a self-financing flat on issuance of the allotment letter, and that right constitutes a capital asset under the Income-tax Act; transfer or extinguishment of the right is therefore a transfer of capital asset, and if held for more than three years the resulting gain is long-term capital gain. On the facts stated, the sale consideration was reinvested in a new residential property within the stipulated time, so the conditions for exemption under section 54 were satisfied. The Revenue's objection to long-term treatment and the exemption claim was rejected.

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Issues: (i) Whether the right acquired under an allotment letter in an immovable property constituted a capital asset held from the date of allotment so that the gain on its transfer was long-term capital gain; and (ii) whether exemption under section 54 was available on reinvestment of the sale consideration.

Issue (i): Whether the right acquired under an allotment letter in an immovable property constituted a capital asset held from the date of allotment so that the gain on its transfer was long-term capital gain.

Analysis: The assessee acquired enforceable rights in the flat on issuance of the allotment letter, and the subsequent instalment payments and later possession were only consequential. The right in the property was itself a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961, and transfer under section 2(47) included extinguishment of that right. Since the right was held for more than three years before transfer, the gain arising from its transfer was long-term capital gain.

Conclusion: The gain was rightly treated as long-term capital gain and the Revenue's objection failed.

Issue (ii): Whether exemption under section 54 was available on reinvestment of the sale consideration.

Analysis: The sale consideration was reinvested in a new residential property within the stipulated time, and the assessee had made substantial payment at the time of the new agreement. Once the transfer was treated as giving rise to long-term capital gain, the statutory conditions for exemption under section 54 stood satisfied.

Conclusion: The assessee was entitled to exemption under section 54.

Final Conclusion: The Revenue's challenge to the treatment of the gain and to the exemption claim was rejected, and the addition made in assessment did not survive.

Ratio Decidendi: In a self-financing flat allotment, the allottee acquires a capital asset in the form of a right in the property from the date of allotment, and transfer of that right after the prescribed holding period yields long-term capital gain eligible for exemption under section 54 on timely reinvestment.

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