2016 (8) TMI 1225 - AT - Income Tax

Tribunal rules no capital gain in 2007-08, reconsiders deductions for 2009-10.

The Tribunal ruled in favor of the assessee, determining that no capital gain accrued in the assessment year 2007-08 as the post-dated cheque was encashed ... Transfer of capital asset upon execution and registration of sale deed - operation of section 53A and section 2(47) - part performance versus registered transfer - condition precedent / intention of parties for effective transfer - accrual of income versus receipt of consideration for capital gains - admissibility of contemporaneous affidavit and surrounding material to rebut registered deedTransfer of capital asset upon execution and registration of sale deed - condition precedent / intention of parties for effective transfer - admissibility of contemporaneous affidavit and surrounding material to rebut registered deed - whether the sale of agricultural land effected by registered sale deed dated 20.03.2007 resulted in transfer chargeable to tax in A.Y. 2007-08 - HELD THAT: - The Tribunal examined the sale deed, the buyer's contemporaneous affidavit, bank cheque(s) and material concerning alleged frauds by developers and subsequent official investigations. While a registered deed is prima facie evidence of transfer, the Tribunal held that registration is not invariably conclusive where the parties have conditioned transfer on full payment or other pre-conditions. On the facts - an undated/ post dated cheque for substantial balance, an affidavit by the buyer stating spot possession would be given only on payment, and evidence of alleged duping of cultivators leading to court directed inquiries - the Tribunal found the sale deed to be in substance a contract conditioned on full payment and approvals. The Tribunal applied the principle that intention of the parties and surrounding circumstances govern operative transfer; where cogent evidence shows no operative transfer on registration, capital gains do not accrue in that year. Following its earlier Division Bench decision in Shri Rajiv Kumar (reproduced and applied), the Tribunal concluded that no transfer had taken place for the assessee in A.Y. 2007-08 and that the addition on account of capital gain for that year was unjustified. [Paras 10, 16, 17, 18]Entire addition on account of long term capital gain for A.Y. 2007-08 deleted; no capital gain accrued in that yearAccrual of income versus receipt of consideration for capital gains - operation of section 53A and section 2(47) - part performance versus registered transfer - whether the revenue may examine and tax the capital gain in A.Y. 2009-10 if and when the balance consideration accrues or is received - HELD THAT: - Having concluded that no capital gain accrued in A.Y. 2007-08 on the material before it, the Tribunal nevertheless left the question of taxability in the subsequent year open. The Tribunal expressly granted the revenue liberty to consider accrual or receipt of capital gain in A.Y. 2009-10 in accordance with law and directed that related claims (including exemptions or deductions under the income tax provisions) be considered by the Assessing Officer in that year, if so advised, after giving the assessee reasonable opportunity of being heard. [Paras 15, 18]Revenue given liberty to reconsider and, if appropriate, assess capital gain in A.Y. 2009-10; matter remitted to Assessing Officer for fresh consideration in accordance with lawAdmissibility of contemporaneous affidavit and surrounding material to rebut registered deed - condition precedent / intention of parties for effective transfer - disposition of related appeals for A.Y. 2009-10 and directions as to further proceedings on claims for exemptions and agricultural income - HELD THAT: - For the assorted appeals in A.Y. 2009-10 where protective additions or claims for exemptions/deductions were made, the Tribunal set aside the orders below to the extent they proceeded on the view that capital gain had already been taxed in A.Y. 2007-08. The Tribunal restored the issues (long term capital gain, claims under relevant exemption provisions, and disputed agricultural income adjustments) to the file of the Assessing Officer for redetermination in A.Y. 2009-10 in accordance with law and directed that the Assessing Officer afford reasonable opportunity of hearing to the assessees. [Paras 15, 20, 25]Orders in A.Y. 2009-10 set aside/restored to Assessing Officer for fresh adjudication; appeals in 2009-10 treated as allowed for statistical purposes where indicatedFinal Conclusion: The Tribunal held that on the facts no operative transfer took place on registration of the sale deed on 20.03.2007 and deleted the capital gain additions for A.Y. 2007-08; the revenue was granted liberty to examine taxability in A.Y. 2009-10 and related issues (exemptions, agricultural income) were remitted to the Assessing Officer for fresh consideration with opportunity to assessees. Issues Involved:1. Addition of long-term capital gain on sale of agricultural land.2. Denial of deduction under Section 54B of the Income Tax Act.3. Charging of interest which is consequential and mandatory.4. Protective addition for the subsequent assessment year.5. Disallowance of agricultural income and its treatment as income from undisclosed sources.Issue-wise Detailed Analysis:1. Addition of Long-Term Capital Gain on Sale of Agricultural Land:The assessee challenged the addition of Rs. 2,68,43,750/- as long-term capital gain for the assessment year 2007-08. The Assessing Officer (AO) noted that the assessee sold land for Rs. 2,95,28,125/- through a registered sale deed dated 20.03.2007, receiving part of the consideration immediately and the balance through a post-dated cheque encashed in June 2008. The AO held that the entire sale consideration should be taxed in the year of the sale deed's execution (2007-08), citing Section 54 of the Transfer of Property Act, which deems the property transferred upon execution and registration of the sale deed if possession is given. The assessee argued that the capital gain should be recognized in the year the post-dated cheque was encashed (2009-10). The Tribunal referenced a similar case (Shri Rajiv Kumar Vs ITO) where it was held that no capital gain accrues until the cheque is encashed, thus favoring the assessee's position.2. Denial of Deduction Under Section 54B of the Income Tax Act:The assessee's claim for deduction under Section 54B was denied by the AO on the grounds that the capital gain was taxable in the assessment year 2007-08. Since the Tribunal ruled that the capital gain should be considered in the assessment year 2009-10, the issue of deduction under Section 54B was rendered moot for the year 2007-08 and directed to be reconsidered in the year 2009-10.3. Charging of Interest:The issue of charging interest was deemed consequential and mandatory by the Tribunal, hence, it was not a point of contention.4. Protective Addition for the Subsequent Assessment Year:For the assessment year 2009-10, the AO made a protective addition of Rs. 2,68,43,750/- due to the primary addition being made in 2007-08. The CIT(A) deleted the protective addition following the confirmation of the primary addition in 2007-08. However, with the Tribunal's ruling that the capital gain should be considered in 2009-10, the protective addition issue was directed to be reconsidered for the year 2009-10.5. Disallowance of Agricultural Income and Its Treatment as Income from Undisclosed Sources:The AO disallowed the agricultural income of Rs. 2,67,022/- for the period from April to August, treating it as income from undisclosed sources, based on the assumption that the possession of the land was transferred in March 2007. The Tribunal, considering the ruling that the capital gain should be recognized in 2009-10, directed the AO to reconsider the issue of agricultural income for the year 2009-10.Conclusion:The Tribunal ruled in favor of the assessees, holding that no capital gain arises in the assessment year 2007-08 due to the post-dated cheque being encashed in 2009-10. Consequently, the issues of deduction under Section 54B, protective addition, and agricultural income were directed to be reconsidered for the assessment year 2009-10. The appeals for the year 2007-08 were partly allowed, and the appeals for the year 2009-10 were allowed for statistical purposes.