2023 (7) TMI 559 - AT - Income Tax

Payment of interest u/sec. 234C - Non payment of advance tax instalment on time as per sec. 208 which he is required to pay - accrual of income - As per AO though the agreement was dated 19/12/2013, the pay order for payment of sale consideration was dated 14/12/2013 and that day, since the pay order was purchased, the capital gain had accrued on that date and liability to pay advance tax had arisen on 14/12/2013 itself and no advance tax was paid on or before 15/12/2013 HELD THAT - Admittedly, the factual position is that the pay order was purchased on 14/12/2013 which was cleared on 16/12/2013, but the registration of sale took place only on 19/12/2013. That, as per the provisions of Transfer of Property Act, 1882, the ownership of an immovable property gets transferred from one party to another only through valid registration before the Registrar of Assurances. Till the time, the ownership is transferred whatever advance, party receives is a liability in his hand and it does not take the character of income accrued. We are in conformity with the findings of the ld. CIT(A) that such liability to pay advance tax arises only on the accrual of income in the hands of the assessee and not prior to that. When the pay order was purchased and it was cleared on 16/12/2013 such amount received was only a liability in the hands of the assessee and was not an income accrued . Thus no liability arises to pay advance tax on or before 15/12/2013. Since, the sale registration was completed on 19/12/2013, the liability to pay advance tax on the sale transaction can only be said to have arisen on 19/12/2013. Therefore, we do not find any infirmity with the findings of the ld. CIT(A), which is upheld. The grounds of appeal of the Revenue are dismissed.

Summary

Issues involved:
The judgment deals with the issue of payment of interest under section 234C of the Income Tax Act, 1961 based on the timeline of events related to the sale of property and the liability to pay advance tax.

Issue 1:
The primary issue was whether the liability to pay advance tax on capital gains arising from the sale of property arose before the registration of the sale agreement.

The Assessing Officer (AO) contended that the liability to pay advance tax had arisen on the date the pay order was issued towards the sale consideration, which was before the registration of the sale agreement. The AO proposed to levy interest under section 234C of the Act due to the alleged failure of the assessee to estimate income and pay tax on the capital gain earned during the year.

The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the liability to pay advance tax can only arise on the accrual of income in the hands of the assessee and not before that. The CIT(A) held that income from the sale of property accrued to the assessee only upon the registration of the sale agreement, which took place after the date of the pay order. Therefore, the CIT(A) concluded that there was no liability to pay advance tax before the registration of the sale agreement.

Issue 2:
The second issue involved the interpretation of the timeline of events related to the sale transaction and the legal implications for the payment of advance tax.

The Tribunal analyzed the sequence of events, including the dates of the pay order, clearance of funds, and registration of the sale agreement. It was noted that under the Transfer of Property Act, ownership of immovable property is transferred only through valid registration. The Tribunal agreed with the CIT(A) that until the sale was legally completed through registration, any amount received was considered a liability and not income accrued. Therefore, the liability to pay advance tax on the sale transaction was deemed to have arisen only upon the registration of the sale agreement.

Conclusion:
The Tribunal upheld the decision of the CIT(A) and dismissed the appeal of the Revenue. It was determined that the liability to pay advance tax on the capital gains from the sale of property arose only after the registration of the sale agreement, and not before, based on the legal and factual analysis of the sequence of events.