Property transfer complete upon possession in 2013, no deemed gift under Section 56(2)(vii) for AY 2015-16

The ITAT Kolkata ruled in favor of the assessee regarding an addition under Section 56(2)(vii) for deemed gift. The assessee had entered into a property purchase agreement with a developer in 2010, completed all payments by October 2012, and obtained possession on January 9, 2013, including installing electricity connection in her name. Although the conveyance deed was registered during AY 2015-16, the tribunal held that transfer within the meaning of Section 2(47) had already been completed in 2013 when possession was taken. Since the transfer was complete in 2013, no deemed gift under Section 56(2)(vii)(b) could be determined in the assessee's hands for AY 2015-16. The tribunal allowed the appeal and deleted the addition made by lower authorities.

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ISSUES:

Whether the difference between the stamp duty valuation and the purchase cost disclosed in the deed constitutes income taxable under Section 56(2)(vii) of the Income Tax Act, 1961.Determination of the point in time when "transfer" of immovable property occurs within the meaning of Section 2(47) of the Income Tax Act for the applicability of Section 56(2)(vii).Whether the provisions of Section 56(2)(vii)(b) apply when possession and payment are completed prior to the operative financial year but registration occurs later.

RULINGS / HOLDINGS:

The difference between the stamp duty valuation and the purchase price disclosed in the deed does not constitute taxable income under Section 56(2)(vii) if the transfer of property is held to have occurred prior to the financial year 2014-15."Transfer" within the meaning of Section 2(47) is to be construed as occurring when possession of the property is taken, not merely on registration of the conveyance deed.Where possession and full payment were completed before the financial year 2014-15, the amended provisions of Section 56(2)(vii)(b), effective from FY 2014-15, do not apply; instead, the pre-amended provisions govern the transaction.Accordingly, no deemed gift income arises under Section 56(2)(vii) in respect of the difference in valuation if the transfer is deemed to have taken place prior to the operative date of the amendment.

RATIONALE:

The Court applied the definition of "transfer" under Section 2(47) of the Income Tax Act, which includes "the extinguishment of any rights therein" and recognizes transfer upon execution of an agreement to sell and taking possession.Explanation 2 to Section 2(47), inserted retrospectively from 1.4.1962, clarifies that transfer includes disposing of or parting with an asset by way of an agreement.The Court relied on the precedent that possession and substantial completion of payment constitute transfer, even if registration occurs later, referencing the judgment of the Hon'ble Allahabad High Court and ITAT Ranchi Bench decisions.The Court noted that Section 56(2)(vii)(b) was amended by the Finance Act, 2013, effective from FY 2014-15, expanding its scope to include inadequate consideration; however, this amendment does not apply retrospectively to transactions where possession and payment were completed earlier.This interpretation avoids taxing transactions as deemed gifts where the substantive transfer occurred prior to the amendment's operative date, thereby respecting the temporal applicability of the law.

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