As per section 45 of ITA, 1961 income from transfer of capital asset is chargeable to tax under the head Capital Gains in the year in which transfer took place. This section is subject to provisions of Section 54/54B/54D/54EC……
Assessee can claim deduction or exemption for capital gain arising on transfer of capital asset by investing or purchasing a new asset referred to in various sections mentioned in Section 54/54B/ 54D/54 EC etc.
Section 2(47) which defines the word ‘transfer’ in the context of capital asset provides that allowing the possession of immovable property by contract of nature referred to in section 53A of Transfer of Property Act1 is chargeable to tax in the hands of transferor.
Whether buyer or transferee take reference to the above definition and claim exemption under the head capital gain by taking possession of the immovable property without registered sale deed.
Judicial Analysis:
86 taxmann.com 217- Chandigarh Tribunal Anil Bishnoi vs Ass. CIT
Facts:
Assessee sold for a consideration of Rs. 1,29,00,000/- and claimed deduction U/S 54B by purchasing agricultural lands one worth of Rs. 28,84,500/- through registered sale deed and other one of Rs. 1,00,00,000/- through agreement to sell which is not registered.
Assessing Officer has denied exemption in relation to the investment of Rs. 1,00,00,000/- on the contention that the purchase was not registered. He further contended that to claim exemption the assesse should buy the property through a registered deed. He further observed that the word purchase is not akin to the word transfer as defined U/S 2(47).
Assessee contended that entire purchase consideration is paid through cheque and possession of the land is taken by him with right to use the land or to sell it further.
The assessee has file an appeal against the order of AO before CIT(A). The CIT(A) upheld the order passed by the AO.
Further assessee has filed an appeal before tribunal against the order of CIT(A).
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C.S.ATWAL vs CIT 59 Taxmann.com 359 the Punjab and Haryana High Court held that the provisions of section
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The ITAT held that if capital gains are deemed to have been earned by the assessee on transfer of land as per the provisions of Section 2(47) of the Act, as per which the registration of the sale deed is not necessary, the consequences are that the seller or the assessee is said to have transferred his right in property and consequently those rights are acquired by the transferee;
If in the case of transferor, the same is to be treated as sale, then, we do not find any reason to give a different meaning to the word 'Purchase'. If someone has sold a property, consequently the other person has purchased the said property. If the transfer of property is complete as per the definition of transfer u/s 2(47) of the Act, the assessee is made labile to pay tax on the capital gains earned by him, on the same analogy, the transfer is also complete in favour of the purchaser also.
Gulshan Malik vs CIT 223 Taxman 243 – DELHI HIGH COURT
Facts: -
The assessee and his wife had booked an apartment by payment of certain amount and buyer’s agreement was executed. Subsequently, assessee has entered into an agreement to sell to sell their booking rights or interest in the apartment.
The AO treated the income from transfer of allotment rights as ‘Short Term Capital Gain’ and denied exemption U/S 54 on reinvestment. The CIT(A) and ITAT upheld the order of the AO.
The High Court held that enjoyment of property as well any interest in any of transferable capital asset was included within the ambit of ‘Capital Asset’. Even booking rights or rights to purchase the apartment or to obtain its letter was also capital asset.
Sanjeev Lal vs CIT- 46 taxmann.com 300- Supreme Court
Facts: -
The assessee has acquired a residential property in terms of will executed by his grandfather. The assessee has entered into an agreement to sell in respect of the said property and received certain amount by way of earnest money. However, the sale deed was executed later and purchased a new residential house beyond one year from the date of executing the sale deed but the new purchase was within in one year prior to the date of executing the agreement to sell.
The AO held that the assessee was not entitled to deduction U/S 54 considering the date of execution of sale deed.
Assessee filed an appeal before CIT(A) who upheld the order of AO. Later the ITAT and High Court also upheld the decision of AO.
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Important aspect of acquisition of asset under the head Capital Gain |
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The Honorable Supreme Court held that “even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation one can say that some right, in respect of the said property, belonging to the assessee had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed”.
Looking at the provisions of section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred.
Conclusion: - Considering the harmonious construction of the provisions which subserve the object and purpose should also be made while constructing any provisions of the Act and more particularly when one is concerned with the exemption from payment of tax.
The definition of the word transfer which provides that allowing the possession of immovable property in part performance of contract nature is chargeable to tax the same analogy can applied while claiming the exemption U/S 54/54B/ 54F etc. where by buyer has taken possession of immovable property but the registration of sale deed was not done.
