Determination of date of transfer of capital asset before and after AY 2017-18... where two AYs are involved

[Vivek Jalan]

On and from AY 2017-18, Special provisos were added to Section 50C (1) of Income Tax Act, for full value of consideration in certain cases. The Section with the provisos hold that –

Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any stamp valuation authority, the value so adopted for assessment shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

[Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a [bank account or through such other electronic mode as may be prescribed], on or before the date of the agreement for transfer.]

However, these provisos are applicable w.e.f. AY 2017-18. Earlier, the decision of Hon'ble Supreme Court in case of M/S SESHASAYEE STEELS P. LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI (2) , CHENNAI - 2019 (12) TMI 702 - SUPREME COURT in this respect lays down that in order to attract provisions of section 53A of the Transfer Of Property Act The transferee must, in part performance of the contract, have taken possession of the property or any part thereof. The transferee (developer) must have performed or be willing to perform his part of the agreement. Further, a registered deed must be executed. It should not be a mere a license to enter the property for the purpose of carrying out development. As per the decision of The Hon'ble Karnataka High Court in case of CIT AND JCIT VERSUS TK. DAYALU - 2012 (6) TMI 405 - KARNATAKA HIGH COURT, capital gains will arise in the year in which full control and possession of land in question is given.

Another issue raised many a times is that say in the above example, the entire consideration was paid by the buyer in Year 1 after deduction of TDS u/s 194IA, then would the proposition change and the Capital Gain or Capital Loss be assessed in Year 1 as it would be deemed that the transfer took place in year 1 itself. The answer still will not change as transaction shall be treated as transfer only when possession has been taken or retained by buyer. Since possession of property has been handed over to buyer in Year 3, transfer would be considered to have taken place in Year 3 only.

Now consider the case where the date of agreement fixing the amount of consideration and the date of registration of property is different, value adopted by stamp valuation authority on the date of agreement has to be taken for purposes of computing full value of consideration of such transfer in case the control/possession has been transferred as on the date of fixing the consideration as held in the case of SMT. NEELA REDDY MORAMREDDY GARU, HYDERABAD VERSUS INCOME TAX OFFICER WARD 14 (5) HYDERABAD AND DY. CIT, CIRCLE 8 (1) HYDERABAD VERSUS SMT. NEELA REDDY MORAMREDDY GARU, HYDERABAD - 2023 (11) TMI 932 - ITAT HYDERABAD

To sum up, prior to AY 2017-18 the capital gains should be offered to tax in the year in which the following conditions are satisfied –

1. The year in which the transferee has taken physical possession of the property or any part thereof.

2. The year in which transferee has performed or is willing to perform his part of the agreement.

A mere a license to enter the property for the purpose of carrying out development work would not be sufficient. But, as per the decision of The Hon'ble Karnataka High Court in case of CIT AND JCIT VERSUS TK. DAYALU - 2012 (6) TMI 405 - KARNATAKA HIGH COURT, capital gains will arise in the year in which full control and possession of property in question is given.