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The recent judgment in the case of Anuj Agarwal vs. Principal Commissioner of Income Tax (PCIT), Kolkata has brought significant clarity regarding the date of acquisition for calculating capital gains under the Income Tax Act, 1961. The Calcutta High Court ruled in favor of the taxpayer, stating that the date of allotment of the property, not the date of sale agreement registration, should be considered as the date of acquisition. This decision has far-reaching implications for property owners and investors dealing with capital gains tax.
The case arose from a dispute regarding the assessment year 2011-12. The taxpayer, Anuj Agarwal, had purchased an office unit in Mumbai. The sequence of events was as follows:
01.08.2006: The taxpayer received an allotment letter for the office unit and paid the initial installment.
27.12.2007: An agreement for sale was executed.
18.03.2008: The sale agreement was officially registered.
29.04.2010: The taxpayer sold the property to Macleods Pharmaceutical Ltd.
The core issue was whether the date of acquisition for calculating capital gains should be:
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The date of allotment (01.08.2006), which granted the taxpayer rights over the property, or
The date of registration (18.03.2008), when the sale agreement was formally recorded.
The tax authorities considered the registration date as the acquisition date, thereby denying the taxpayer the benefit of long-term capital gains (LTCG), which would have resulted in a lower tax liability. The Principal Commissioner of Income Tax (PCIT) rejected the taxpayer’s revision petition, applying the principles laid down in Suraj Lamp and Industries Pvt. Ltd. vs. State of Haryana (2012), which held that an unregistered sale agreement does not confer ownership.
The Calcutta High Court ruled in favor of the taxpayer. The key points of the judgment were:
The court held that the date of allotment (01.08.2006) created a direct legal interest in the property. The subsequent registration of the sale agreement was considered a procedural formality under the Maharashtra Apartment and Ownership Act, not the date of acquisition.
The court relied on Section 2(47), Explanation 2 of the Income Tax Act, 1961, which gives a broad definition of “transfer.” It clarified that a transfer includes parting with or creating an interest in an asset, directly or indirectly, even without a formal registration. Thus, the allotment letter and the payment made by the taxpayer prior to the registration date were deemed sufficient to establish a legal interest.
The court remanded the case to the assessing officer, directing them to consider the date of allotment (01.08.2006) as the acquisition date for capital gains calculation. The taxpayer was also entitled to claim a refund for any excess tax paid due to the erroneous assessment.
The ruling sets a crucial precedent for taxpayers dealing with property transactions. It clarifies that for capital gains purposes, the allotment date—when the buyer gains rights over the property—is the effective date of acquisition, not the registration date. This interpretation offers tax relief to property owners, as the holding period will be longer, potentially qualifying them for long-term capital gains benefits and lower tax rates.
The key takeaway from this case is:
The date of allotment is considered the acquisition date for capital gains calculation, not the date of sale agreement registration.
This interpretation offers tax benefits to taxpayers by qualifying the gains as long-term capital gains in cases where the holding period meets the required threshold.
The decision reinforces that substance over form prevails in tax law, focusing on the creation of interest rather than mere procedural formalities.
The judgment in Anuj Agarwal vs. PCIT Kolkata is a landmark decision that provides much-needed clarity on capital gains taxation in real estate transactions. It highlights the importance of the date of allotment in determining the acquisition date, potentially offering significant tax benefits to property owners. This ruling will serve as a reference point for future cases and benefit taxpayers dealing with property-related capital gains disputes.
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CA Jitendra Agarwal, a Chartered Accountant, is an experienced Income Tax Advisor with a proven track record in tax planning and compliance.
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