2017 (11) TMI 983 - AT - Income Tax

Capital gain claim - on doubt about the handing over of the possession of the property as per the Terms of the Agreement treated as Unexplained money under section 68 - exemption under section 54 denied - co-ownership on property - Held that - It is in general practice to make entire payment of amount in consideration pending the execution of Sale deed, only when possession of the property is handed over to the buyer. Hence, there was no reason to doubt about the handing over of the possession of the property as per the Terms of the Agreement and as per the financial statements of the buyer company on full payment of the amount in consideration. It is undisputed position of law that for the purpose of section 2(47) of the Income Tax Act, transfer of immovable property is complete on handing over of the possession of the property on payment of sale consideration in performance of a contract of the nature referred to in section 53-Aof the Transfer of the Property Act. It is also undisputed fact that name of the owner on the record of House Tax and Electricity Departments is transferred on the basis of Registered Sale Deed only. Thus the report of the Income Tax Officer has no relevance. And above all, in the case of co-owner i.e. Rajendra Kanodia & Sons (HUF) who was owner of the 50% of the same property, the Assessing Officer in the assessment under section 143(3) for the same assessment year has allowed the claimed exemption under section 54 of the I. T. Act on the sale of their 50% of the property. Under these facts and circumstances, we hold that the Assessing Officer was not justified in denying the claimed exemption under section 54 of the Act to the assessee on the basis that possession of the property was not handed over to the buyer and thus, sale was not complete in absence of execution of Sale Deed. We thus, while setting aside orders of the authorities below in this regard, direct the Assessing Officer to allow the claimed exemption - Decided in favour of assessee.

Summary

Issues involved:
1. Assessment of long-term capital gain on the transfer of property.
2. Allowability of exemption under section 54 of the Income Tax Act.
3. Treatment of sale consideration under section 56 of the Act.

Detailed Analysis:

1. Assessment of Long-Term Capital Gain:
The case involved the transfer of a 50% share in a property for a consideration of ?3 crores and subsequent purchase of another property. The Assessing Officer treated the transactions as sham, disallowed the claimed exemption under section 54, and computed the income accordingly. The first appellate authority upheld this decision. However, the appellant argued that the possession of the property was handed over to the buyer, completing the transfer under section 2(47) of the Act. The appellant provided evidence such as possession letters, agreement terms, and financial statements to support this claim. The Tribunal noted that possession had indeed been transferred to the buyer, and based on the evidence presented, held that the Assessing Officer was unjustified in denying the claimed exemption. The Tribunal directed the Assessing Officer to allow the exemption, thereby allowing the appeal.

2. Allowability of Exemption under Section 54:
The appellant claimed exemption under section 54 for the long-term capital gain arising from the property transfer. The Assessing Officer and the first appellate authority had denied this claim based on the belief that possession had not been transferred to the buyer. However, the Tribunal found that the possession had indeed been handed over, as evidenced by various documents submitted by the appellant. The Tribunal held that the denial of the claimed exemption was unjustified and directed the Assessing Officer to allow the exemption under section 54 of the Act.

3. Treatment of Sale Consideration under Section 56:
The Assessing Officer treated the sale consideration as unexplained money under section 68 of the Act. This decision was based on the belief that the transactions were sham and the possession had not been transferred. However, the Tribunal found that the possession had been transferred to the buyer, making the sale valid. The Tribunal held that the Assessing Officer's decision to treat the sale consideration as unexplained money was incorrect. The Tribunal allowed the appeal and directed the Assessing Officer to allow the claimed exemption under section 54, thereby setting aside the orders of the authorities below.

In conclusion, the Tribunal allowed the appeal, emphasizing that the possession of the property had been transferred to the buyer, thereby completing the sale transaction and warranting the allowance of the claimed exemption under section 54 of the Income Tax Act.