Indexation for capital gains starts when enforceable property rights arise under the agreement, not on later possession.

For computing indexed cost of acquisition under Explanation (iii) to Section 48, the relevant date is when the assessee acquires a substantive and enforceable right in the property, not the later date of possession. Where the flat is specifically identified in the agreement to sell and substantial consideration has already been paid, the holding period and indexation commence from the agreement date. The authorities erred in taking possession as the starting point, and the long-term capital gain was required to be recomputed accordingly.

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Issues: Whether, for computing indexed cost of acquisition and long-term capital gain, the assessee's holding period had to be reckoned from the date of the agreement to sell with substantial payment and identification of the flat, or from the later date of possession.

Analysis: The flat was specifically identified in the agreement to sell, the payment schedule showed substantial consideration had been paid in the earlier year, and the contractual arrangement had created a right in favour of the assessee to hold the property. In such a situation, the relevant date for determining the period of holding and the commencement of indexation is the date on which the assessee acquired the enforceable right in the property under the agreement, not the later date of possession. The authorities below erred in treating possession as the starting point for indexation.

Conclusion: The issue is decided in favour of the assessee; indexation is to commence from the date of the agreement to sell, and the long-term capital gain is to be recomputed accordingly.

Ratio Decidendi: For the purpose of Explanation (iii) to Section 48 of the Income-tax Act, 1961, the relevant date for indexation is the date on which the assessee acquires a substantive and enforceable right in the property, and not the later date of possession.

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