Holding period for capital gains can start from an agreement to sell when enforceable rights in property arise.

For capital gains computation on sale of immovable property, the holding period may run from the date the assessee acquires an enforceable right under an agreement to sell or allotment, rather than only from the date of registration of the conveyance deed. Applying that approach, the earlier agreement date was treated as the date of acquisition under the Income-tax Act, 1961, so the gain qualified as long-term capital gain and the addition treating it as short-term capital gain was deleted.

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Issues: Whether, for computation of capital gains on sale of immovable property, the date of the agreement to sell was to be treated as the date of acquisition for determining the holding period, so that the resultant gain was taxable as long-term capital gain and not short-term capital gain.

Analysis: The dispute turned on the meaning of the holding period under section 2(42A) of the Income-tax Act, 1961 and the manner of computing capital gains under section 48 of the Income-tax Act, 1961. The property had been agreed to be purchased earlier, while the registered sale deed was executed later. The Tribunal followed the view that, for capital gains purposes, the relevant date is not confined to the date of registration of the conveyance deed, but may be the date when the assessee acquired the enforceable right in the property under the agreement or allotment, as recognised in the authorities relied upon. On that basis, the earlier agreement date constituted the date of acquisition for computing the period of holding.

Conclusion: The date of agreement to sell was accepted as the date of acquisition for computing the holding period, and the gain was held to be long-term capital gain. The addition treating it as short-term capital gain was deleted.

Final Conclusion: The assessee succeeded, and the appellate relief resulted in acceptance of the claim that the property had been held long enough to qualify for long-term capital gain treatment.

Ratio Decidendi: For purposes of section 2(42A) of the Income-tax Act, 1961, the holding period of an immovable property can run from the date on which the assessee acquires a substantive right under the agreement or allotment, and not necessarily from the date of registration of the sale deed.

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