2023 (11) TMI 855 - AT - Income Tax

Capital gains computation based on property rights extinguishment date, not agreement date, following Supreme Court precedents

The ITAT Chennai held that computation of long-term capital gains should be based on the date when owner's rights in property are extinguished, not the ... Long term capital gains - transfer of immovable property - date of transfer - de facto transfer under Section 2(47)(vi) - extinguishment of owner's rightsDate of transfer - transfer of immovable property - de facto transfer under Section 2(47)(vi) - extinguishment of owner's rights - long term capital gains - Whether the transfer for computation of long term capital gains occurred in FY 2005-06 (AY 2006-07) or on 19.07.2007 (FY 2007-08; AY 2008-09). - HELD THAT: - The Tribunal examined the sale deed dated 19.07.2007 (which records final payment of the balance consideration at registration and contains covenants that possession is to be given on registration) against the affidavit relied on by the Revenue which stated that vacant possession was handed over earlier. The Agreement to sell and the sale deed expressly provide that vacant possession was to be given at the time of registration and the final payment was made on 19.07.2007. Applying the legal test articulated by the Hon'ble Supreme Court in Seshasayee Steels (P) Ltd. (following Balbir Singh Maini), the decisive criterion is extinction of the owner's rights so as to effect a de facto transfer under Section 2(47)(vi). On the material on record the owner's rights stood extinguished only on 19.07.2007 and not on the earlier agreement date; consequently the transfer for income tax purposes completed on 19.07.2007 and the assessment of capital gains is exigible in the assessment year 2008-09. As this determination disposes of the substantive controversy, the earlier assessment for AY 2006-07 was quashed. [Paras 6, 7]Transfer occurred on 19.07.2007 (FY 2007-08) and capital gains are assessable in assessment year 2008-09; appeal allowed and assessment for AY 2006-07 quashed on this sole issue.Final Conclusion: The Tribunal allowed the assessee's appeal, holding that the transfer completed on 19.07.2007 (FY 2007-08) when the owner's rights were extinguished and therefore capital gains could be assessed only in assessment year 2008-09; the assessment for assessment year 2006-07 was quashed. Issues:The judgment involves the computation of long-term capital gain and the disallowance of exemption under section 54 of the Income Tax Act.Computation of Long Term Capital Gain:The appellant sold a residential house in the financial year 2005-06 for Rs. 17.50 lakhs and invested the entire sale consideration in purchasing a plot at Tiruvanmiyur. The Assessing Officer (AO) denied the claim of deduction under section 54 of the Act, stating that the transfer took place in the assessment year 2006-07. The Commissioner of Income Tax (Appeals) upheld this decision, noting that the property was handed over to the purchaser in the relevant financial year based on documentary evidence. The Tribunal considered the sale deed executed on 19.07.2007, which indicated the final payment made on that date, supporting the appellant's claim that the transfer occurred in the subsequent assessment year. Referring to legal precedents, including the decision of the Hon'ble Supreme Court, the Tribunal concluded that the owner's rights to the property were extinguished on 19.07.2007, leading to the quashing of the assessment for the year 2006-07. Consequently, the appeal on this issue was allowed.Exemption under Section 54:The appellant's claim for exemption under section 54 of the Act was disallowed by the AO, leading to a series of appeals. The CIT(A) rejected the claim based on the date of transfer provided in the affidavit and sale agreement. However, the Tribunal analyzed the sale deed executed on 19.07.2007, which indicated the final payment made on that date. By aligning with legal principles established by the Hon'ble Supreme Court, the Tribunal determined that the transfer occurred in the subsequent assessment year, rendering the appellant eligible for the exemption under section 54. Consequently, the appeal on this issue was allowed.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the assessment for the year 2006-07 based on the determination that the transfer of the property took place in the subsequent assessment year. The judgment was pronounced in open court on 18th October 2023 at Chennai.