2017 (1) TMI 1323 - AT - Income Tax

Rectification of mistake - assessee is not entitled for capital gains deduction in respect of the investments made u/s 54EC - whether the buyer has not become full owner of the transferred asset on that date since the contents of clauses (4) and (8) were not met? - Held that - The date of registration of the property is not to be reckoned for the purpose of computing the timing of reinvestment of the capital gains when the said sale deed recited clause (4), which is extracted above. Since, the final payment is made only in January 2008 in accordance with the said clause (4) of the agreement, the original assessment order passed by the AO is proper and it does not call for any rectification. Consequently, the rectification order passed by the AO u/s 154 of the Act suffers from illegality. Further, we find, the case laws cited by the CIT (A) are not on the similar facts as in the case of the assessee. - Decided in favour of assessee

Summary

Issues:
1. Validity of order passed under section 154 by CIT (A)
2. Interpretation of Conveyance Deed for capital gains deduction
3. Commencement of time period for investment in bonds under section 54EC

Issue 1: Validity of order passed under section 154 by CIT (A)
The appeal was filed against the order of the CIT (A) upholding the order passed under section 154. The assessee contended that there was no mistake apparent in the original order. The Assessing Officer rectified the original assessment order, denying capital gains deduction under section 54EC. The assessee argued that the rectification on an issue involving judicial debate was unsustainable. The dispute arose from the date of the sale agreement and the subsequent payment schedule, leading to the denial of the deduction. The Tribunal found that the rectification order was improper as the final payment determining ownership rights was made in January 2008, as per the agreement terms.

Issue 2: Interpretation of Conveyance Deed for capital gains deduction
The primary contention was the interpretation of the Conveyance Deed regarding the transfer of the capital asset and the commencement of the time period for investment in bonds under section 54EC. The assessee argued that the transfer occurred only upon receipt of the total sale consideration, which was completed in January 2008. The Tribunal relied on legal precedents emphasizing that title and possession pass only upon full payment of consideration, aligning with the terms of the agreement. The Tribunal held that the date of registration was not relevant for reinvestment timing, supporting the assessee's original claim for capital gains deduction.

Issue 3: Commencement of time period for investment in bonds under section 54EC
The Tribunal's decision on the first issue rendered the discussion on the other grounds academic. The Tribunal allowed the appeal in part, emphasizing that the rectification order was invalid due to the timing of the final payment as per the Conveyance Deed. The legal principles cited from previous judgments highlighted the significance of complete payment for the transfer of ownership rights, impacting the eligibility for capital gains deduction. The Tribunal's ruling clarified the importance of contractual terms in determining the timing of transactions for tax purposes, ultimately favoring the assessee's position based on the specific clauses of the agreement.

This detailed analysis of the judgment from the Appellate Tribunal ITAT MUMBAI provides a comprehensive overview of the issues involved and the Tribunal's reasoning in deciding the appeal.