Holding period for immovable property runs from registered conveyance, and later occupation certificate does not defer long-term capital gain treatment.

For computing the holding period of immovable property under section 2(42A), title passes on execution of a registered conveyance, and a later occupation certificate does not defer ownership or the start of holding. On that basis, gains from the sale of commercial properties acquired under registered deeds in December 2005 and transferred in January 2010 were treated as long-term capital gains. Deduction claims under section 48(1) for cost of improvement and transfer-related expenditure were only partly acceptable: pre-operative expenditure was not connected with transfer and was disallowed, while brokerage and professional fee claims required factual verification before the Assessing Officer.

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Issues: (i) whether the gain arising from sale of the commercial properties was taxable as long-term capital gain or short-term capital gain having regard to the date of execution of the registered sale deeds and the subsequent issuance of occupation certificate; (ii) whether the claim for deduction of cost of improvement and expenditure incurred in connection with the transfer of the properties was allowable under section 48(1) of the Income-tax Act, 1961.

Issue (i): whether the gain arising from sale of the commercial properties was taxable as long-term capital gain or short-term capital gain having regard to the date of execution of the registered sale deeds and the subsequent issuance of occupation certificate.

Analysis: The properties were acquired through registered sale deeds executed in December 2005. On execution of a registered deed of conveyance, right, title and interest in immovable property pass to the purchaser, and the period of holding under section 2(42A) is to be computed from that date. The later issuance of the occupation certificate did not defer the assessee's ownership or holding period. Applying this principle, the properties were held for more than 36 months before transfer in January 2010.

Conclusion: The gain was rightly assessed as long-term capital gain, and the Revenue's challenge failed.

Issue (ii): whether the claim for deduction of cost of improvement and expenditure incurred in connection with the transfer of the properties was allowable under section 48(1) of the Income-tax Act, 1961.

Analysis: The claim comprised items said to be incurred towards improvement, brokerage, and professional fees. The part of the improvement claim that appeared to relate to expenditure booked after the sale required factual verification to determine whether the work was actually done before transfer. Pre-operative expenditure was held not to be connected with transfer and therefore not allowable. As regards brokerage and professional fees, the record was considered insufficient for final adjudication, and the assessee was permitted to substantiate the claim before the Assessing Officer.

Conclusion: The issue was partly remitted for fresh verification, while the disallowance of pre-operative expenditure was upheld.

Final Conclusion: The classification of the capital gains as long-term was sustained, and the deduction issue was sent back in part for verification, leaving the Revenue without relief and the assessee with only partial relief.

Ratio Decidendi: For computing the period of holding of immovable property under section 2(42A), the decisive date is the date on which title passes under a registered conveyance, and a later occupation certificate does not postpone the commencement of holding.

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