The date of allotment of the property was 20-5-1986,
Consideration paid for allotment of property on 29-5-1986
Date of possession certificate 23-6-1998 and title deed was executed on 06-01-2004
The issue is whether, for computing cost of inflation of asset, the date to be reckoned was the date of allotment of property to the assessee, i.e. 1986-1987, or date on which possession certificate was issued, i.e. 1998-1999?
Impact analysis: while computing the cost of acquisition and/or cost of improvement in the case of long-term capital assets, indexation of the nominal value of actual money invested in acquiring such property is allowed. Higher the indexation factor more will be the indexed cost and lower will be taxable capital gain which is computed after deduction of such indexed cost from “net consideration received or receivable”.
“indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, , whichever is later;
“Cost Inflation Index”, in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five percent of average rise in the Consumer Price Index (urban) for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.
Thus, if we consider the index of 1986-1987 the indexed cost works out to be Rs. 20,34,539/- however considering the year 1998-1999 same would be Rs. 8,11,497 resulting in a difference in a taxable long-term capital gain of Rs. 12,23,042/-.
“Short term capital asset” in Section 2(42A), a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer is a Short term capital asset.
Section 2(29A) defines “Long term capital asset” means a capital asset that is not a short-term capital asset.
Analysis of law:
For the purpose of determining the nature of capital gain, the law is concerned with the period during which the asset is held by the assessee for all practical purposes on a de facto basis. The law is not concerned with absolute legal ownership of the asset for determining the holding period.
The allottee gets the title of the property on the issuance of an allotment letter and full payment of the cost of the site. The issuance of a possession certificate is only a consequential action upon which delivery of possession flows. Therefore, the date of allotment letter and payment of consideration viz., 29-5-1986, i.e. 1986-87, is the year of acquisition for the purpose of calculation of the inflated cost of acquisition.
When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of the full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of the cost of acquisition, a title deed is to be executed in favor of the assessee.
Even in the absence of a title deed, the assessee holds that property, and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long term capital gain and accordingly indexation needs to be done.