2011 (6) TMI 463 - AT - Income Tax

Taxable event in case of transfer of immovable property- Applicability of 50C & Exemption under 54F - Held that - 2(47) transfer in relation to a capital asset includes, (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act 1882 (4 of 1882). As regards to applicability of section 50C it is stated that section 50C of the Act was inserted by the Finance Act 2002 w.e.f. 1.4.2003 and thus is not applicable to the assessee s case. Once it is a fact that the transfer took place as on 28.12.2000 the provisions of section 50C which was made applicable w.e.f. 1.4.2003 i.e. for and from assessment year 2003-04 the same will not apply to assessment year 2001-02 when the capital asset of the assessee was transferred As regards to allowance of exemption u/s. 54F, The assessee has also made investment of the sale consideration of plot of land of her share in purchase of residential flat for a total cost of Rs. 23.50 lac vide Deed of Agreement for Sale dated 23.3.2001 and possession of the flat was also delivered to the assessee on 27.4.2001 the conditions for exemption u/s. 54 of the Act are fulfilled and assessee is eligible for exemption. The issue under consideration is allowed in favour of the assessee in entirety.

Summary

Issues Involved:
1. Assessment of long-term capital gain in the relevant assessment year.
2. Denial of deduction under section 54F of the Income Tax Act.
3. Invocation of provisions of section 50C of the Income Tax Act.

Detailed Analysis:

1. Assessment of Long-Term Capital Gain:
The primary issue was whether the long-term capital gain from the sale of the property should be assessed in the assessment year 2005-06 or 2001-02. The assessee argued that the transfer of the property occurred in the assessment year 2001-02 when the agreement for sale was executed, possession was handed over, and substantial consideration was received. The AO and CIT(A) contended that the sale was completed in the assessment year 2005-06 when the conveyance deed was executed.

The Tribunal concluded that the transfer took place in the assessment year 2001-02, as per section 2(47)(v) of the Income Tax Act, which includes transactions involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract. The Tribunal referenced the case of Chaturbhuj Dwarkadas Kapadia v. CIT, which held that capital gains are taxable in the year in which such transactions are entered into, even if the transfer of immovable property is not effective or complete under general law.

2. Denial of Deduction Under Section 54F:
The assessee claimed exemption under section 54F for the purchase of a residential flat against the sale consideration received from the property. The AO disallowed this claim, stating that the assessee could not provide evidence supporting the deduction.

The Tribunal found that the assessee had indeed purchased a residential flat within the stipulated period and fulfilled all conditions under section 54F. The Tribunal allowed the exemption, emphasizing that the net consideration from the transfer of land was utilized in acquiring a flat within the stipulated period and that the assessee did not own more than one residential house on the date of transfer.

3. Invocation of Provisions of Section 50C:
The AO invoked section 50C, which deems the valuation determined by the Stamp Valuation Authority as the sale consideration for the purpose of computing capital gains. The assessee argued that section 50C, effective from 1.4.2003, should not apply to the transfer that took place in the assessment year 2001-02.

The Tribunal agreed with the assessee, stating that since the transfer occurred in the assessment year 2001-02, the provisions of section 50C, applicable from the assessment year 2003-04, would not apply.

Conclusion:
The Tribunal ruled in favor of the assessee on all issues. It held that the transfer took place in the assessment year 2001-02, making the provisions of section 50C inapplicable. The Tribunal also allowed the exemption under section 54F, as the assessee had met all the necessary conditions. The appeal was allowed in its entirety.