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 agreement date. Following SC precedents in Seshasayee Steels and Balbir Singh Maini, the tribunal determined that transfer completed on registration of sale deed (19.07.2007) rather than agreement date (04.02.2006). Consequently, capital gains assessment belonged to AY 2008-09, not AY 2006-07. The assessment was quashed and assessee's appeal allowed.

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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.

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