Capital gain arose in the year assessee relinquished rights in property by agreement to sell

Capital gain arose in the year assessee relinquished his rights in the property at the time of allotment by executing agreement to sell

ABCAUS Case Law Citation:
ABCAUS 2832 (2019) (03) ITAT

The Income Tax Department had challenged the order of the CIT(A) in deleting the capital gain holding that  

As per information with regard to sale of property, the Assessing Officer (AO) selected the return of income for scrutiny assessment.

During the course of scrutiny assessment proceedings, the assessee was asked to explain the source of investment in the said property.

The assessee replied that it had executed an agreement to sell four years back to a Construction company. It was further explained that the said property was allotted to the assessee by the Development Authority and the assessee gave all the rights in the said property to the said construction company and in lieu of agreeing to sell this plot to the company he received approx eight per cent amount and the balance amount was to be paid by the vendee to the Development Authority.

The assessee contended that since he has relinquished all the rights in the said property four years ago and hence, no capital gains tax liability arose to him during the year under consideration whe it was resold by the vendee company.

The contention of the assessee was dismissed by the Assessing Officer who was of the view that it is the owner of the property who can sell the same. Before becoming the owner of a property, the same cannot be sold. was of the firm belief that the provisions of section 45(1) r.w.s 2(47) of the Income-tax Act, 1961 (the Act) applied on the facts of the case.

Also the AO was convinced that since the sale deed was executed in four years back, the provisions of section 50C of the Act will determine the full value of consideration.

The assessee carried the matter before the CIT(A) and reiterated its claim that the right in the said property was extinguished way back and, therefore, no liability arose during the year under consideration.

The CIT(A) opined that as far as the appellant was concerned he had transferred all his rights in the property by signing an Agreement to sell and receiving the payment from the company and by appointing General Power of Attorney (GPA) which was a prevalent practice till 2011 when it was specifically banned by the Hon’ble Supreme Court.

The CIT(A) observed that it was the GPA who in the later sale signed the deed of Transfer of lease hold rights in favour of the company and not the appellant. The appellant’s name in the deed of Transfer of lease hold rights was mentioned only because the original allotment was in his name.

Accordingly, the CIT(A) held that the assessee did not had the ownership of the said property during the year under consideration and therefore, there was no question of any capital gains in the assessee’s hands. As such the addition made by the AO was deleted by him.

Before the Tribunal, the Revenue contended that the date of execution of sale deed was the determinative factor for the transfer of property and since the sale deed was executed during the year under consideration, capital gain tax liability arose during the year under consideration.

The Tribunal observed that a perusal of the agreement to sell clearly showed that the assessee had relinquished all his rights in the said property in favour of the vendee.

The Tribunal opined that as per the definition of transfer u/s 2(47) of the Act, transfer in relation to any capital asset means “extinguishment of any rights therein” which clearly applied on the facts of the case.

The Tribunal held that since the transfer has taken place four years before, basis of charge i.e. 45(1) of the Act arose in that year as the said provision as well as any profits or gains arising from transfer of capital asset effected in the previous year shall be chargeable to income tax under the head capital gain and shall be deemed to be income as previous year in which transfer took place.

Accordingly the ITAT dismissed the appeal of the revenue

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