2013 (8) TMI 759 - AT - Income Tax

Capital gain - transfer u/s 2(47) - taxability in the year in which agreement took place or in the year in which sale deed registered - Held that - merely because an agreement to sale has not been registered, which otherwise is in the nature of agreement referred to in section 53A cannot be taken out of ambit of section 2(47)(v) of the Act when parting of the possession of immovable property has taken place - The sale deed in respect of above transaction was registered in financial year 2006-07 relevant to the year under consideration and on which stamp duty was charged on the value of Rs. 23,50,85,500/-. The assessee offered capital gains in respect of the above transaction in assessment year 2004-05 which was duly assessed by the Assessing Officer u/s 143(3) in the assessment of the assessment year 2004-05 - Therefore, property in question has already been treated as transfer by the assessee in assessment year 2004-05 and therefore, in respect of that transfer, capital gains cannot be assessed in the assessment of assessment year 2007-08 - Decided against Revenue.

Issues Involved:
1. Taxability of capital gains in the assessment year 2007-08.
2. Validity of the transfer of property in the assessment year 2004-05 under Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act.

Detailed Analysis:

Issue 1: Taxability of Capital Gains in the Assessment Year 2007-08

The Revenue's grievance is that the CIT(A) erred in holding that the capital gains were not taxable in the assessment year 2007-08. The Assessing Officer (AO) proposed to assess the capital gains based on the sale deed signed on 29.3.2007. The AO did not accept the assessee's contention that the sale of the property was completed in the previous year relevant to the assessment year 2004-05 and brought to tax the balance between the sale value attributable to the assessee as per the sale deed registered on 27.3.2007 and the actual capital gain assessed in the assessment year 2004-05.

Issue 2: Validity of the Transfer of Property in the Assessment Year 2004-05

The assessee had inherited property and entered into an agreement for joint development and sale dated 20.11.2003, along with his brother, with M/s Ceebros Hotels Pvt. Ltd. The entire consideration was received, and the property possession was handed over to M/s Ceebros Hotels Pvt. Ltd. The assessee declared the capital gains in the assessment year 2004-05, which was accepted by the AO. The CIT(A) deleted the addition made by the AO for the assessment year 2007-08, holding that the transfer was effectively completed in the assessment year 2004-05 under Section 2(47)(v) of the Income Tax Act, read with Section 53A of the Transfer of Property Act.

CIT(A)'s Observations:

1. The appellant and his brother entered into a Memorandum of Agreement for joint development and gave an irrevocable Power of Attorney to M/s Ceebros Hotels Pvt. Ltd., handing over possession of the property.
2. The appellant had already filed his return of income for the assessment year 2004-05, admitting the capital gains and paying the taxes, which was accepted by the AO.
3. In the year 2007-08, the land was registered in the name of M/s Ceebros Hotels Pvt. Ltd., and the AO assessed the difference in value between the guideline value adopted for the Memorandum of Agreement and the guideline value adopted for registration purposes.
4. The CIT(A) relied on the jurisdictional High Court's decisions, holding that the ingredients of Section 53A of the Transfer of Property Act were satisfied, and the capital gains were taxable in the year the transactions were entered into, even if the transfer of immovable property was not effective or complete under general law.

DR's Arguments:

1. The DR argued that the date of registration of the sale deed (29.03.2007) should be the date of transfer, making the capital gains taxable in the assessment year 2007-08.
2. The DR contended that the conditions set out in Section 53A of the Transfer of Property Act were not complied with, as the sale agreement was not registered, and there was no evidence to show that the transferee took possession of the property as an owner.
3. The DR relied on the decision of the Hon'ble Supreme Court in the case of Nangegowda & Anr vs Gangamma & Ors, which emphasized the necessity of possession and performance of the contract for invoking Section 53A.

Tribunal's Findings:

1. The Tribunal noted that the property in question was treated as transferred under Section 2(47)(v) in the assessment year 2004-05, and capital gains were assessed in that year.
2. The Tribunal held that after treating the property as transferred in the assessment year 2004-05, it was not open to the Revenue to again treat the same property as transferred in the assessment year 2007-08.
3. The Tribunal emphasized that merely because an agreement to sell was not registered, it could not be taken out of the ambit of Section 2(47)(v) when parting of possession of the immovable property had taken place.
4. The Tribunal found no merit in the DR's contention that the assessee had not parted with the possession of the property based on the provisions of the MoU.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decision that the capital gains were correctly assessed in the assessment year 2004-05, and the addition made by the AO for the assessment year 2007-08 was not justified. The Tribunal emphasized the importance of the effective transfer of property under Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act.

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