Section taken into consideration:

 

Sec.2(47) of the Income Tax Act, 1961

“Sec.2 (47) “transfer”, in relation to a capital asset, includes,—

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in trade of a business carried on by him, such conversion or treatment ; or

(iva) the maturity or redemption of a zero coupon bond; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation [1]: For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA

Facts of the case:

In the present case, the Revenue challenges the order passed by the Income Tax Tribunal allowing the Assessee’s Appeal for the AY 2011-2012. The Assessee is the owner of the gymnasium (the “property”) wherein it entered into two agreements for sale of the said property with the purchaser on 14.02.2011. As per the agreement, the two property had been agreed to be sold for a consideration of Rs.2,20,00,000/- each. Only a token amount of Rs.20,00,000/- was received as advance by the assessee and the balance consideration was agreed to be paid by 26.05.11. The possession of the property was not handed over to the purchaser. In respect to clause 3(ii) of the agreement, it is provided that the purchaser would pay the balance consideration of Rs.2 crores to the assessee on or before 26.05.11 which was subject to the conditions that the assessee would make out their title and all other rights and interest in the said property as clear, marketable and free from all encumbrances, within 30 days from the date of execution of the agreement. Vide clause No.13 of the agreement, it was agreed that the purchaser would be able to take the possession of the property on payment of the balance consideration. The AO, however, did not agree with the contentions of the assessee. He observed that the premise was transferred by way of registered sale agreements both executed on 14.02.2011 i.e. during the year under consideration. The sale agreement in question was not revocable. The handing over of the possession of the property on a future date was a mere formality and hence short term capital gains earned by the assessee from the sale of the property were to be taxed in the A.Y. 2011-12. Aggrieved by the order, the assessee filed an appeal before CIT (A).

Issue before CIT (A):

Whether capital gains arising from the sale of the said property would be liable to be assessed in the A.Y. 2011-12?

The assessee submitted that though the agreements to sale were executed during the financial year relevant to assessment year in question, however, the actual sale took place in the subsequent year and the capital gains were accordingly offered in subsequent AY 2012-13, which had been accepted by the department also. The assessee further explained that the assessee had not parted with the possession of the property in question during the year under consideration.

 

 

CIT (A) Verdict:

The CIT (A) upheld the findings of the AO that the transfer of the property took place on the date of agreement and thus the capital gains were liable to be assessed during the year under consideration. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before ITAT.

 

 

Issue before ITAT:

Whether the short term capital gains earned by the assessee from the sale of the immovable property were to be taxed in the assessment year under consideration i.e. A.Y. 2011-12 as against offered by the assessee in the subsequent A.Y. 2012-13?

 

 

ITAT’s Verdict:

The hon’ble ITAT while going through the entire document along with the accompanied agreement on which the stamp duty was paid, made the following observation:

(i) The document executed on 14.02.11 was an agreement to sale, the assessee continued to be the owners in possession of the property till the handing over of the possession of the said property to the purchasers on receipt of balance consideration received on 16.06.11.

(ii)At the time of handing over of the possession, it had been conveyed that the assessee’s were the sole and absolute owner of the said property and have paid of the statutory taxes etc. relatable to the said property till the handing over of the possession on 16.06.11.

(iii)The assessee had offered the due taxes in the subsequent year relevant to the financial year in which the sale deed was completed and the possession was handed over to the purchasers, which has been accepted by the department and thus held that the assessee was not liable to pay any capital gain tax relating to the premises in question for the year under consideration.

 

Bombay High Court Verdict:

The Hon’ble High Court upholding the decision of the Tribunal held that the appeal is devoid of merits and dismissed the same on the following grounds:

(i)Merely because the agreement for sale dated 14.02.2011 for the said property is registered it does not partake the character of a conveyance or a sale deed automatically.

(ii)The possession was not handed over but was to be handed over on compliance with certain obligations by the Assessee and thus it is evident that the Assessee was in possession of the property from February to June 2011. It was carrying on its business from the property up to April 2011.

 

Acelegal Analysis:

(i)The fact that an agreement for sale of property is registered does not make it a conveyance.

(ii)The sale or transfer is not complete on the date of the execution of the agreement if there are obligations to be fulfilled by both parties