2011 (9) TMI 243 - AT - Income Tax

Transfer Date Determines Deduction Eligibility: Tribunal Allows Section 54 Benefit

The Tribunal held that the date of transfer for the old property should be reckoned as 30-04-2004. Since the new flat was acquired on 25-06-2003, within ... Deduction u/s 54 - Late registration of transfer documents - Capital gain from sale of flat in the Joint name of two assessee - membership of a co-operative society - held that:- both assessees before us not only received the full consideration and handed over the possession of the flat but also handed over the various documents which were necessary for transfer. - Held that:- We fail to understand what colourable device has been used by the assessee for which AO has applied the decision of McDowell [1985 (4) TMI 64 - SUPREME Court]. - The legal position clearly shows that the transfer deed dated 30-4-04 clearly transferred all the rights of the assessee to the transferees and, therefore, in our opinion, that transfer deed should be construed as the deed of transfer. - the date of transfer for the old property has to be reckoned as 30-4-04 which is well within one year from the date of acquisition of new deed on 25-6-03. Therefore, in our opinion, assessee is entitled to exemption u/s.54. Issues Involved:1. Denial of deduction under Section 54 of the Income Tax Act, 1961.2. Determination of the date of transfer of the old property.Detailed Analysis:1. Denial of Deduction under Section 54:The primary dispute in these appeals concerns the denial of deduction under Section 54 of the Income Tax Act, 1961. Both assessees, who were co-owners of a flat in Usha Kunj, Mumbai, sold the flat and claimed a deduction under Section 54 against the purchase of a new flat. The Assessing Officer (AO) denied the deduction, holding that the new flat was not acquired within one year from the date of transfer of the old flat.2. Determination of the Date of Transfer:The crux of the dispute lies in determining the correct date of transfer of the old property. The assessees claimed that the transfer occurred on 30-04-2004, while the AO contended that the transfer date was 27-08-2004, the date when the transfer deed was registered.Arguments and Evidence Presented:Assessees' Argument:- The assessees argued that the old property was sold on 30-04-2004, as full consideration was received, and possession was given on that date.- They submitted various documents, including the agreement dated 23-04-2004, the deed of transfer dated 30-04-2004, and maintenance bills issued in the name of the new owners.- They contended that all formalities of transfer were completed on 30-04-2004, and the delay in registration was due to the purchaser's actions.Assessing Officer's Argument:- The AO conducted inquiries and found discrepancies, including maintenance bills being issued under a wrong impression.- The AO referred to the amendment to Section 53A of the Transfer of Property Act, which mandates registration for a transfer to be considered valid.- The AO concluded that the transfer occurred on 27-08-2004, the date of registration, and thus, the new flat was not acquired within one year from the date of transfer.CIT(A) Findings:- The CIT(A) upheld the AO's decision, emphasizing the necessity of registration for the transfer to be valid under the amended Section 53A.- The CIT(A) relied on various case laws and concluded that the assessees were not entitled to the deduction under Section 54.Tribunal's Analysis:- The Tribunal examined the definition of 'transfer' under Section 2(47) of the Income Tax Act, which includes the extinguishment of rights and transactions involving possession in part performance of a contract.- The Tribunal referred to the Supreme Court's decision in CIT v. Podar Cement (P.) Ltd., which held that for the purpose of the Income Tax Act, the ground realities and the right to receive income from the property are crucial.- The Tribunal noted that the assessees had received full consideration, handed over possession, and completed all formalities on 30-04-2004.- The Tribunal concluded that the transfer should be considered as completed on 30-04-2004, despite the delay in registration.Conclusion:- The Tribunal held that the date of transfer for the old property should be reckoned as 30-04-2004.- Since the new flat was acquired on 25-06-2003, within one year from the date of transfer, the assessees were entitled to the deduction under Section 54.- The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction under Section 54.Result:- The appeals of both the assessees were allowed.