2025 (3) TMI 47 - HC - Income Tax

Property acquisition date for capital gains starts from allotment date, not registered sale agreement date

Calcutta HC allowed revision petition challenging AO's rejection of long-term capital gains claim. Court held that property acquisition date should be ... Revision u/s 264 - claim of long term capital gains made - whether the AO was right in rejecting the stand taken by the assessee and holding that the date of acquisition of the subject property should be reckoned as 18.3.2008, when the agreement for sale was executed and registered in terms of the Maharashtra Apartment And Ownership Act and not from the date of allotment, namely, 1.8.2006. HELD THAT:- The definition of transfer as defined under the Transfer of Property Act should not be emerged while considering whether a transaction is a transfer under the provisions of the Income Tax Act. Undoubtedly, on the date of allotment, namely, 1.8.2006 a right has accrued in favour of the appellant/assessee. This is more so because the developer has accepted that the assessee has paid a sum of Rs.3,13,000/- by cheque dated 29.7.2006 which was prior to the allotment order dated 1.8.2006. The revenue does not dispute the fact that the payment schedule has been adhered to by the assessee and ultimately on the date when the agreement for sale was executed, namely, 27.12.2007, 82.5% of the entire sale price payable has been paid by the assessee. Prior to the date of sale in favour of the third party which took place on 29.4.2010 the entire consideration has been paid by the assessee which has been acknowledged by the developer. All these payments are a consequence of an allotment made on 1.8.2006 and, therefore, it has to be held that the right over the property in question accrued in favour of the assessee as on the date of allotment i.e. 1.8.2006. Undoubtedly, the letter of allotment and the payment made thereafter has created in favour of the assessee an interest in the asset directly and it was by way of an agreement/or otherwise. It would be beneficial to take note of the decision of the Hon’ble Supreme Court in Saraswati Devi v. Delhi Development Authority and Others [2013 (1) TMI 1058 - SUPREME COURT] for the purpose of understanding as to what would the term encumbrance mean. The word “encumbrance” imports within itself every right or interest in the land, which may subsist in a person other than the owner; it is anything which places the burden of a legal liability upon property. Further it was held that the word “encumbrance” in law has to be understood in the context of the provision under consideration but ordinarily its ambit and scope is wide. Thus, apart from the definition of the word “encumbrance” as explained in the aforementioned decision, it should be understood in the context of the provision under consideration which, in our instant case, is the Income Tax Act. Undoubtedly, a direct interest on the property stood created in favour of the assessee as and when the letter of allotment was issued, namely, 1.8.2006 because prior to the date of letter of allotment, the payment was made by the assessee in July, 2006 which has been acknowledged in the letter of allotment. Therefore, we are of the view that the order passed by the PCIT as well as the assessment order calls for interference. Accordingly, this appeal is allowed. The order passed in the writ petition is set aside and the writ petition is allowed. The matter is remanded back to the assessing officer with the direction to take note of the date of allotment, namely, 1.8.2006 as the date of transfer of the subject asset in favour of the assessee and accordingly, the assessment shall be completed. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered was whether the claim of long-term capital gains made by the appellant/assessee was justified and whether the assessing officer was correct in determining the date of acquisition of the subject property. The specific question was whether the acquisition date should be considered as 18.3.2008, when the agreement for sale was executed and registered, or 1.8.2006, the date of allotment. Additionally, the applicability of the decision in Suraj Lamp and Industries Private Limited v. State of Haryana and Another in determining the date of transfer was questioned.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework involved the interpretation of 'transfer' under Section 2(47) of the Income Tax Act, 1961, and its relevance to the determination of long-term capital gains. The decision in Suraj Lamp and Industries Private Limited was considered, which dealt with the proper mode of transfer under the Transfer of Property Act, 1882, but not directly under the Income Tax Act.Court's interpretation and reasoning:The Court noted that the decision in Suraj Lamp and Industries Private Limited did not arise under the Income Tax Act and was not applicable to the definition of transfer under the Act. The Court emphasized that the definition of transfer under the Income Tax Act, particularly Explanation 2 of Section 2(47), provides a broad interpretation that includes creating any interest in an asset in any manner.Key evidence and findings:The Court found that the appellant was allotted an office unit on 1.8.2006, and a payment of Rs.3,13,000/- was made prior to this date. The allotment letter and subsequent payments created a direct interest in the asset for the appellant. The agreement for sale was executed and registered later, on 18.3.2008, but the right to the property was established as of the allotment date.Application of law to facts:The Court applied the broad definition of transfer under the Income Tax Act to conclude that the right over the property accrued on the date of allotment. The payment and terms of the allotment created an interest in the asset, which was consistent with the definition of transfer under the Act.Treatment of competing arguments:The PCIT's reliance on the decision in Suraj Lamp and Industries Private Limited was rejected as it was not applicable to the Income Tax Act. The Court referenced the decision in Madhu Kaul v. Commissioner of Income Tax, which supported the view that the date of allotment confers a right to hold the property, relevant for long-term capital gains.Conclusions:The Court concluded that the appellant's right over the property accrued on 1.8.2006, the date of allotment, and not on the date of registration of the sale agreement. The PCIT's decision and the assessment order were found to be incorrect and required interference.SIGNIFICANT HOLDINGSThe Court held that the decision in Suraj Lamp and Industries Private Limited was not applicable to the facts of the case under the Income Tax Act. The Court emphasized the broad definition of transfer under Section 2(47) of the Act, including the creation of any interest in an asset.Key principles established include the recognition of the date of allotment as the date of transfer for the purpose of long-term capital gains and the inapplicability of property transfer principles under the Transfer of Property Act to the Income Tax Act.The final determination was to allow the appeal, set aside the writ petition order, and remand the matter to the assessing officer to consider the date of allotment as the date of transfer. The appellant was also entitled to seek a refund of taxes paid pursuant to the assessment order.