Validity of Letter of Allotment by ITO

[Vishal v Kanakia]

Dear Sir,

I have purchased a Under-Construction Residential Flat in July 2011 by paying 75% Agreement Value.

Builder issued me Letter of Allotment on the same date.

I signed Sale Agreement and paid Stamp Duty + Registration Charges + VAT + Service Tax in September 2013.

Thereby I paid Balance 25% Agreement Value in March 2014.

The Building is still under-construction and I have not taken possession from the builder.

Now in December 2015, I sold my Under-Construction Flat to Mr X.

Further, I have invested the entire proceeds of the above Sale of Flat in a another ready to occupy Flat.

Now I have 3 options for the above transaction :

1) I pay Short Terms Capital Gains Tax (As sale is before 36 months if Agreement for Sale is considered as valid).

2) I pay Long Terms Capital Gains Tax (As Sale is after 36 months if Letter of Allotment is considered as valid).

3) I claim Tax Benefit under section 54F of Income Tax (As Sale is after 36 months of Letter of Allotment + New Residential Flat is purchased from its Sale proceeds).

Please guide what is the best option available for the above Transaction.

Regards,

Vishal K,

Mumbai.

AI Summary

Date of acquisition determination governs capital gains classification and availability of section 54F exemption on property sale proceeds. The key issue is whether the Letter of Allotment constitutes the legal date of acquisition for capital gains and section 54F purposes. Acceptance of the Letter of Allotment as acquisition would render the subsequent sale long term and potentially qualify the taxpayer for section 54F exemption; if acquisition is only the later registered agreement or possession, the sale may be short term and section 54F inapplicable. Resolution depends on legal recognition of allotment letters, timing of registration and payments, and statutory tests for acquisition.