Holding period for flat allotment runs from acquisition of rights, with transfer-linked interest and eligible capital expenses allowed.

For a flat booked under an allotment and buyer's agreement, the holding period is computed from the date enforceable rights in the property were acquired, not from the date of possession; the asset was therefore treated as a long-term capital asset. Interest on the acquisition loan was allowable up to the date of transfer because it formed part of expenditure connected with the capital asset, while only expenses with a direct nexus to acquisition, improvement, or transfer could be included. Maintenance and similar upkeep expenses were not allowable as cost of acquisition or improvement, and related business disallowance was corrected to avoid double addition.

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Issues: (i) Whether the assessee's share in the flat was a long-term capital asset acquired on the date of allotment or buyer's agreement, and not on the date of possession, for computing capital gains; (ii) Whether interest on the loan taken for purchase of the flat was allowable up to the date of sale while computing cost of acquisition/improvement; (iii) Whether the assessee was entitled to credit of other expenses and business-related expenses claimed in relation to the flat.

Issue (i): Whether the assessee's share in the flat was a long-term capital asset acquired on the date of allotment or buyer's agreement, and not on the date of possession, for computing capital gains?

Analysis: The asset was identified and allotted to the assessee under the allotment letter, and the entire consideration was substantially paid much before possession. The buyer's agreement conferred enforceable rights in the property, and possession was only a consequential step flowing from those rights. The holding period therefore had to be computed from the date on which rights in the flat were acquired, not from the date possession was handed over.

Conclusion: The date of acquisition was directed to be taken as 8 March 2006, and the gain was to be assessed as long-term capital gain, in favour of the assessee.

Issue (ii): Whether interest on the loan taken for purchase of the flat was allowable up to the date of sale while computing cost of acquisition/improvement?

Analysis: The loan was taken for acquiring the property, and the interest formed part of the expenditure incurred in relation to the capital asset. Once the transfer was treated as a long-term transfer, the expenditure connected with acquisition and improvement had to be allowed up to the date of transfer. The restriction adopted up to the date of possession was not accepted.

Conclusion: Interest was held allowable up to the date of sale, in favour of the assessee.

Issue (iii): Whether the assessee was entitled to credit of other expenses and business-related expenses claimed in relation to the flat?

Analysis: The expenses had to be examined on their nature and nexus with the capital asset or its transfer. Charges directly connected with improvement or transfer-related expenditure were allowable, while maintenance and similar upkeep expenses were not allowable as cost of acquisition or improvement. The business disallowance was also corrected to avoid double addition where the amount had already been added back in computation, and commission linked to transfer was to receive the same treatment as in capital gains computation.

Conclusion: The assessee succeeded only partly on these claims, with allowance confined to eligible capital and transfer-related items and disallowance sustained for maintenance-type expenses.

Final Conclusion: The appeal resulted in a partial relief to the assessee, with the asset treated as a long-term capital asset, interest allowed up to the date of transfer, and only eligible expenditure directions granted while other upkeep-related claims were declined.

Ratio Decidendi: For a flat booked under an allotment and buyer's agreement, the right in the property constitutes the relevant capital asset for holding-period computation, and expenditure intrinsically connected with acquisition or transfer is allowable up to the date of transfer, but mere maintenance or upkeep expenses are not part of such cost.

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