In a significant judgment dated March 24, 2025, the Income Tax Appellate Tribunal (ITAT) Mumbai ruled in favour of a taxpayer, redefining how long-term capital gains (LTCG) are calculated on real estate transactions. The Tribunal held that the date of allotment, not the date of registration or possession, is the key factor in determining the holding period of a property.
This precedent-setting decision brings clarity for homeowners across India who claim tax exemptions under Section 54 and Section 54F of the Income Tax Act, especially those involved in under-construction or delayed registration property deals.
🔍 Case Background: Sale of Flats in Mumbai and LTCG Dispute
A taxpayer had sold two flats in Malad, Mumbai, during Financial Year (FY) 2009-10 for ₹21.55 lakh each. These flats were originally allotted on October 7, 2005, but were registered only in FY 2015-16. The taxpayer claimed LTCG exemption under Section 54 in his ITR for Assessment Year (AY) 2010-11, which was initially accepted by the Income Tax Department.
However, the issue arose in FY 2015-16 when the Assessing Officer (AO) disputed the LTCG claim, stating that since the flats were registered only in FY 2015-16, the holding period was less than 36 months and thus, the gains should be classified as short-term capital gains (STCG).
📌 Core Issue: Allotment Date vs. Registration Date
The central question was:
“Should the holding period for capital gains be calculated from the date of property allotment or from the date of registration?”
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The AO and CIT (Appeals) argued in favour of the registration date.
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The taxpayer maintained that the allotment date marked the start of ownership.
🧾 Legal Arguments and ITAT Ruling
✅ Documents Submitted by Taxpayer:
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Memorandum of Agreement from FY 2009-10
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Proof of flat allotment in FY 2005-06
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Indexation and reinvestment details
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Return filings confirming Section 54 LTCG exemption
🧑⚖️ ITAT Mumbai’s Judgment Highlights:
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Date of Allotment = Start of Holding Period: Referring to the landmark case of Anita D. Kanjani (ITA No. 2291/Mum/2015) and K. Ramakrishnan (Delhi HC, 2014), the Tribunal ruled that the allotment letter constitutes the transfer of ownership rights, thus marking the beginning of the holding period.
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ITR Already Accepted: The taxpayer had already declared the gains and claimed exemption in AY 2010-11, which was accepted earlier. Revisiting it without valid cause was deemed unjustified.
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Rs 1.42 Crore STCG Addition Deleted: The entire amount added by the AO as short-term capital gains was dismissed by ITAT.
📈 Key Tax Takeaways from the Ruling
1. Date of Allotment Determines LTCG/STCG Classification
This decision clarifies that capital gain holding period is to be counted from the date of allotment, not registration. This helps taxpayers qualify for LTCG tax benefits earlier.
2. Section 54 and 54F Benefits Get Easier
By establishing ownership from the allotment date, taxpayers can claim tax exemptions under Section 54 or 54F with greater certainty, provided they reinvest the gains into new residential properties within the stipulated time.
3. Reduced Legal Disputes
Experts believe this ruling will reduce future litigations and reassessments as it brings clarity on holding period interpretation—a common point of dispute between taxpayers and the Income Tax Department.
🧠 Expert Opinions on ITAT Ruling
💬 Sandeep Jhunjhunwala, Partner – Nangia Andersen LLP:
“The Tribunal rightly concluded that an allotment letter confers substantial rights to the buyer, making it the effective start of ownership. This judgment will benefit taxpayers with favourable LTCG tax rates and indexation.”
💬 Dr. Suresh Surana, Chartered Accountant:
“By recognizing the allotment date as the start of ownership, this ruling gives taxpayers an edge in qualifying for LTCG treatment and claiming exemptions. It also applies to properties purchased before April 1, 2001, where FMV substitution benefits under Section 55(2)(b) can be claimed.”
🧮 Section 54 vs Section 54F: Understanding the Difference
| Feature | Section 54 | Section 54F |
|---|---|---|
| Applicable on | Sale of residential house | Sale of any long-term capital asset (except residential house) |
| Reinvestment Condition | Buy or construct 1 or 2 houses in India | Buy or construct only 1 house in India |
| Time Limit | Purchase: 1 year before or 2 years after; Construction: 3 years | Same |
| Maximum Exemption | Up to ₹10 crore (post-Budget 2023 cap) | Same |
| Other House Ownership Allowed? | Yes | No (must not own more than one house apart from the new one) |
📚 Final Word: How This Judgement Impacts Homeowners and Real Estate Sellers
This ITAT Mumbai ruling is a landmark win for real estate taxpayers. It streamlines the process of capital gains classification and brings judicial clarity on what constitutes ‘ownership’—an allotment letter rather than just legal registration.
For those looking to sell real estate and claim Section 54/54F exemption, maintaining proper documentation like:
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Allotment letter
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Payment receipts
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Sale agreement
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Builder correspondence
is now more important than ever.
✅ Pro Tip: If you’re planning to sell a property and reinvest for capital gains exemption, consult a tax advisor and preserve all relevant purchase documents—including the allotment letter—to avoid future disputes.
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