1986 (7) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Whether the surplus of Rs. 98,000 realized on the sale of a property was exempt from assessment under the head 'Capital gains' under section 54E of the Income-tax Act, 1961.
2. Determination of the effective date of transfer of the property for the purpose of capital gains assessment.
3. Applicability of the amended provisions of section 54E(1) and Explanation 1(b) regarding the investment of net consideration in National Rural Development Bonds.

Issue-wise Detailed Analysis:

1. Whether the surplus of Rs. 98,000 realized on the sale of a property was exempt from assessment under the head 'Capital gains' under section 54E of the Income-tax Act, 1961:
The Income Tax Officer (ITO) initially held that the surplus of Rs. 98,000 was not assessable under 'Capital gains' but as 'Income from other sources' because there was no valid transfer of the property by the assessee-vendor. However, the Commissioner (Appeals) later determined that the receipt of Rs. 98,000 fell under 'Capital gains' but denied the exemption under section 54E due to non-compliance with the amended provisions requiring investment in National Rural Development Bonds.

2. Determination of the effective date of transfer of the property for the purpose of capital gains assessment:
The main contention was whether the transfer date was 25-1-1979, when the agreement to sell was executed and registered, or 29-3-1979, when the sale deed was executed and registered. The assessee argued that the sale deed related back to the agreement date, thus qualifying for the exemption under the unamended provisions of section 54E. However, the Tribunal concluded that the agreement to sell on 25-1-1979 did not constitute a sale deed, and the actual transfer occurred on 29-3-1979 when the sale deed was executed and registered. This conclusion was based on the interpretation of section 47 of the Indian Registration Act and supported by precedents from the Delhi High Court and the Supreme Court.

3. Applicability of the amended provisions of section 54E(1) and Explanation 1(b) regarding the investment of net consideration in National Rural Development Bonds:
The Tribunal examined whether the net consideration received from the sale was invested in accordance with the amended provisions of section 54E(1). The amended law required investment in National Rural Development Bonds for transfers made after 28-2-1979. Since the Tribunal determined that the transfer occurred on 29-3-1979, the assessee was required to comply with the amended provisions. The investment was made in a nationalized bank, not in the specified bonds, leading to the denial of the exemption.

Conclusion:
The appeal was dismissed, affirming that the transfer of the property took place on 29-3-1979, and the assessee did not comply with the amended provisions of section 54E(1) regarding the investment in National Rural Development Bonds. Consequently, the exemption from capital gains assessment was rightly denied by the Commissioner (Appeals).