Transfer u/s 2(47)(v) complete on taking possession of property in part performance of contract

Transfer u/s 2(47)(v) is complete when possession of immovable property taken over in part performance of contract 

ABCAUS Case Law Citation:
ABCAUS 3051 (2019) (07) ITAT

In The instant case, the Revenue had filed the appeal against the order passed by the CIT(A) in directing to treat the income from capital gain as long term capital gain (LTCG) instead of assessed by the AO as short term capital gain (STCG).

During the year under consideration the assessee had acquired rights and possession of a property upon payment. Subsequently, the said transfer on sale was registered before District Registration Office. The assessee thereafter transferred the right, title and interest in respect of the said property to a third party.

The assessee claimed long term capital gain which was negated by the Learned AO on the ground that the period of holding capital assets is less than 36 months and the same was , therefore, treated to be as  short term capital gain and charged accordingly.

The addition was however deleted in appeal by the CIT(A).

The assessee contended that though the deed of sale was registered later upon permission obtained from the Collector in respect to the property purchased by the assessee, the right, title and interest in the property was acquired by the assessee at the time of payment.

It was submitted that the transfer had completed at the time of payment in terms of Section 2(47)(v) of the Income Tax Act, 1961 (the Act). Subsequently, when the property was sold it had been held for more than 36 months which qualified the gain on such capital asset as Long Term Capital Gain arising on the said transfer.

The Tribunal observed that the assessee purchased the property much earlier upon payment by way of account payee cheques and the possession whereof was handed over to the assessee by the vender.

The Tribunal opined that though the said property was ultimately registered by way of a sale deed later; the transfer of the capital asset was full and complete in so far as the provision of Income Tax Act are concerned in view of the expanded definition of the term “transfer” as contained in section 2(47)(v) of the Act.

According to the Tribunal, the registration of the property which was acquired by the assessee earlier though executed later by way of a registered deed was of no significance. Under Section 53A of the Transfer of Property Act, when the possession of the said immovable property has been taken over by the assessee in part performance of a contract, the transfer is complete.

The Tribunal opined that the assessee was thus holding the property for more than 36 months before selling out the same to third party. Thus, working out of the capital gain as Short Term Capital Gain considering the acquisitionof the property in the previous year of its registration rather than the same in the year when the agreement was executed and the appellant paid the consideration for such acquiring of all right title and interest over the property as done by the AO rightly found not justified by the CIT(A).

Therefore, the Tribunal directed the AO to treat the capital gain as Long Term Capital Gain in the absence of any dispute regarding the sale consideration, cost of acquisition and indexation.

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