2017 (2) TMI 790 - AT - Income Tax

Determination of the year of taxability of the capital gains arising on sale of residential Flat - Held that - For completion of sale in absolute terms, fulfilment of all the three conditions mentioned above are must, i.e. execution of registration of conveyance deed, handing over of possession and payment of full consideration. In the case before us, only first condition was completed and the remaining two conditions were still pending to be executed and were not completed in the impugned year. In addition to that, all the legal formalities for affecting the transfer of the property in the name of purchaser were also not complied with and the same were completed only after payment of maintenance charges by the assessee to the said society. The said Flat came into full and exclusive control of the new purchaser only after when the possession of the same was handed over to them by the assessee on 26-06-2011. Thus, the said Flat was available for enjoyment by the purchaser only after the said date. Thus, taking into account all the facts and circumstances of the case, the sale of the Flat cannot be said to be completed in the year before us. Therefore, the resultant gain arising on the sale of the Flat concluded in the subsequent year could not have been brought to tax in the impugned year. Further, in any case, the taxable amount of capital gain has already been offered to tax by the assessee in the assessment year 2012-13 and has been accepted as such by the Revenue as per the information provided to us. Under these circumstances, it would not be justified to adopt a hyper technical approach and tax the same in this year also which will lead to double taxation and avoidable hardship to the assessee. Therefore, keeping in view the peculiar facts and circumstances of this case and in the interest of justice and all fairness we direct the AO to delete the addition. - Decided in favour of assessee

Issues Involved:
1. Determination of the year of taxability of the capital gains arising on the sale of a residential flat.
2. Classification of rental income as "Income from Other Sources" versus "Income from House Property."

Issue-wise Detailed Analysis:

1. Determination of the Year of Taxability of the Capital Gains:

The primary issue was determining the correct assessment year for taxing the capital gains from the sale of a residential flat. The assessee argued that the sale was completed in AY 2012-13, and hence, the capital gains should be taxed in that year. Conversely, the Assessing Officer (AO) contended that since the sale agreement was registered in FY 2009-10, the capital gains should be taxed in AY 2010-11.

The facts revealed that the assessee, co-owner of the flat with his wife, entered into a sale agreement and received an advance of ?40 lakhs against the total sale consideration of ?85 lakhs. The sale agreement was registered on 03-07-2009, but possession of the flat was handed over in June 2011, and the remaining sale proceeds were received in June 2011.

The assessee argued that three conditions must be met for a sale of immovable property to be considered complete:
1. Passing on of the sale consideration.
2. Handing over of possession by the seller to the buyer.
3. Execution and registration of the conveyance deed.

The Tribunal analyzed the facts and noted that although the sale agreement was registered in FY 2009-10, the possession was handed over, and the remaining consideration was received in FY 2011-12. The Tribunal emphasized that the sale could not be considered complete until all three conditions were met. They referenced the judgments of the Hon'ble Patna High Court in Raj Rani Devi Ramna vs. CIT and the Hon'ble Calcutta High Court in Calcutta Electric Supply Corporation Ltd vs. CIT, which supported the view that the true test for completion of sale is the intention of the parties, and registration alone does not constitute an operative transfer if conditions like payment of consideration or delivery of the deed are pending.

Given the facts, the Tribunal concluded that the sale was not complete in the year under consideration (AY 2010-11) and directed the AO to delete the addition, as the capital gains were correctly offered for tax in AY 2012-13. Thus, Ground 1 was allowed.

2. Classification of Rental Income:

The second issue was whether the rental income should be classified as "Income from Other Sources" or "Income from House Property." The Commissioner of Income Tax (Appeals) [CIT(A)] had confirmed the AO's decision to tax the rental income as "Income from Other Sources." The assessee argued that the rental income arose from a flat given on rent and should be taxed as "Income from House Property."

However, no arguments were made regarding this issue during the hearing before the Tribunal. Consequently, Grounds 2 and 3 were dismissed.

Conclusion:

The Tribunal allowed the appeal concerning the taxability of capital gains, directing the AO to delete the addition for AY 2010-11, as the sale was completed in AY 2012-13. The issues related to the classification of rental income were dismissed due to a lack of arguments. The Tribunal's decision was based on a detailed analysis of the facts, legal precedents, and the intention of the parties involved in the transaction. Both appeals were partly allowed, with the primary relief granted on the capital gains issue.

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