Capital gains tax accrues in the year of transfer; earlier possession and sale disclosure kept the gain outside the year under appeal.

Capital gains tax under section 45 arises in the year of transfer, and section 2(47) treats delivery of possession in part performance as a transfer. On the facts, the agreement to sell and possession had already occurred in an earlier year, and the transaction was disclosed in that earlier return, so the transfer was held to have taken place before the assessment year under appeal. The long-term capital gain was therefore not taxable in the year under appeal, the addition was deleted, and section 50C did not survive for that year.

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Issues: Whether the long-term capital gain arising from transfer of the immovable property was taxable in the assessment year under appeal or in an earlier assessment year, and whether the addition made on that basis was sustainable.

Analysis: The scheme of section 45 fastens capital gains tax in the year in which the transfer takes place, and section 2(47) includes within transfer a transaction where possession of immovable property is allowed to be taken in part performance of a contract. On the facts, the assessee had shown that the agreement to sell and delivery of possession were of an earlier date, the sale transaction had already been disclosed in the return for the relevant earlier assessment year, and surrounding material supported the assessee's version that the transfer had occurred before the year under appeal. In that situation, the assessment year before the Tribunal was not the correct year for bringing the capital gain to tax. Once the gain itself was held not taxable in the year under appeal, the question of applying section 50C for that year did not survive.

Conclusion: The long-term capital gain was not chargeable in the assessment year under appeal, and the addition was deleted in favour of the assessee.

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