2024 (12) TMI 562 - HC - Income Tax

Validity of reopening of assessment - determination of correct assessment year - as dispute pending between the co-sharers the sale consideration was less than the prevailing market prices - petitioner submits that the transaction was complete in the AY 2005-06 and here was no cause of action for the department to initiate re-assessment proceedings for AY 2006-07 - HELD THAT - Section 47 of the Registration Act of 1908 stipulates that where registration of document was not required or not made the document shall come into operation from the time it would have commenced to operate and not from the date or time of its registration. The undisputed facts are that the sale transaction was complete in the AY 2005-06 by execution of agreement receipt of consideration and handling over of possession. The transaction was disclosed in the Income Tax Returns filed for the AY 2005-06. Due to the circumstances pleaded the sale deed was registered in July 2008. The Division Bench of this Court in Maharani Yogeshwari Kumari 1994 (7) TMI 33 - RAJASTHAN HIGH COURT held that the income derived from the property in AY in which the sale deed was executed would be taxable in the hands of the transferee even if the registration of the sale deed was subsequent. As per Section 47 of the Act of 1908 the sale deed executed shall relate to AY 2005-06 and not to the date of registration. Another aspect is that in AY 2006-07 neither of sale of immovable property nor of registration of document had taken place there was no occasion for the income tax authorities to initiate proceedings u/s 148 to determine the capital gains from the transaction of sale of land. Thus he impugned order and notices are quashed.

Summary

Issues:
Quashing of notice under Section 147 read with Section 148 of Income Tax Act, 1961 and rejection of objections filed by the petitioner.

Analysis:
The petitioner sold his share of agriculture land at less than market price due to a dispute among co-sharers. The transaction was disclosed in income tax returns for AY 2005-06. However, a notice was issued for AY 2006-07 under Section 147 read with Section 148 of the IT Act. The petitioner challenged this, citing that the transaction was complete in AY 2005-06, relying on legal precedents like Ittianam case and a Division Bench judgment.

The respondent argued that the sale consideration was not accepted by Registration Authorities, leading to a demand for stamp duty and penalty. Section 47 of the Registration Act of 1908 was cited, stating that a registered document operates from the time it would have commenced to operate if no registration was required.

The court noted that the sale transaction was completed in AY 2005-06, even though the sale deed was registered later in 2008. Referring to the Supreme Court's decision in Ittianam case and the Division Bench judgment in Maharani Yogeshwari Kumari case, it was established that the income derived from the property in the AY of execution of the sale deed would be taxable in the hands of the transferee.

Based on Section 47 of the Registration Act, the sale deed was deemed to relate to AY 2005-06, not the date of registration. Since in AY 2006-07, neither the sale of property nor registration had occurred, the initiation of proceedings under Section 148 of the IT Act was deemed unnecessary. Consequently, the court quashed the impugned order and notices, allowing the writ petition in favor of the petitioner.