1985 (6) TMI 67 - AT - Income Tax

Summary

Issues Involved:
1. Whether the capital gains arising from the transfer of the West Patel Nagar property are exempt under section 54 of the Income-tax Act, 1961.
2. Determination of the date of transfer of the West Patel Nagar property.
3. Whether the capital gains should be treated as long-term or short-term.

Issue-wise Detailed Analysis:

1. Exemption under Section 54 of the Income-tax Act, 1961:
The assessee contended that the capital gains arising from the transfer of the West Patel Nagar property were exempt under section 54, as the property at Paharganj was purchased within one year prior to the sale of the West Patel Nagar property. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) disagreed, stating that the sale of the West Patel Nagar property took place on February 10, 1976, when the sale deed was executed and registered. The purchase of the Paharganj property on November 19, 1974, did not fall within the one-year period required by section 54. The Tribunal upheld the view that the sale of the West Patel Nagar property was completed only upon the execution and registration of the sale deed, not merely upon the agreement to sell.

2. Determination of the Date of Transfer:
The Tribunal examined the agreement to sell dated August 12, 1975, which specified that the possession and the balance sale consideration were to be transferred upon the execution and registration of the sale deed. The Tribunal held that the transfer of property under section 2(47) of the Income-tax Act requires a registered sale deed, and mere possession or receipt of sale consideration does not constitute a transfer. The Tribunal concluded that the transfer of the West Patel Nagar property occurred on February 10, 1976, when the sale deed was executed and registered.

3. Long-term vs. Short-term Capital Gains:
The Tribunal analyzed whether the capital gains arising from the transfer of the West Patel Nagar property should be treated as long-term or short-term. Section 2(42A) defines a short-term capital asset as one held for not more than 36 months immediately preceding the date of its transfer. The Tribunal noted that the assessee had purchased the West Patel Nagar property on November 18, 1970, and held it until its transfer on February 10, 1976, which exceeded 36 months. Therefore, the Tribunal concluded that the capital gains arising from the transfer were long-term and not short-term, contrary to the ITO's assessment.

Conclusion:
The Tribunal allowed the appeal in part, holding that the capital gains arising from the transfer of the West Patel Nagar property were long-term and should be assessed accordingly. The Tribunal upheld the ITO and AAC's decision that the transfer occurred on February 10, 1976, and not on the date of the agreement to sell. Consequently, the assessee was not entitled to the exemption under section 54, as the purchase of the Paharganj property did not fall within the required one-year period before the transfer of the West Patel Nagar property.