2022 (2) TMI 876 - AT - Income Tax

Capital gain computation - transfer of asset u/s 2(47) - year of assessment - whether the transfer, to attract capital gains tax liability, took place on the date of execution of sale deed on 15.12.2007 or on the registration of sale deed on 17.4.2008? - HELD THAT - As per section 45 of the Act, which is a charging section for capital gains, provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54 etc., be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. Manifestly, income under this head becomes chargeable to tax in the year in which the transfer takes place. Transfer takes place only when it becomes operational, that is, on executing the sale deed - neither before it, that is, when the parties are in the process of negotiations, nor after it, that is, when the registration of the deed actually takes place. Sale deed, even though registered on 17.04.2008, was admittedly executed on 15.12.2007, which date falls in the previous year relevant to the A.Y. 2008-09 and, as such, the amount of capital gain becomes chargeable to tax in such preceding assessment year. Since the transfer of the property took place on execution of sale deed in the preceding year, we hold that the amount of capital gain cannot be charged to tax for the A.Y. 2009-10 under consideration. On a specific query, the ld. AR candidly admitted that no capital gain was offered for taxation by the assessee in her return for the A.Y. 2008-09 or any other year. AO is at liberty to take necessary action for taxing the amount in the correct assessment year as per law. Assessee appeal is allowed.

Summary

Issues Involved:
1. Determination of the correct year of taxability of capital gains.
2. Validity of the cancellation of the sale deed and its impact on capital gains tax liability.
3. Interpretation of relevant sections of the Income-tax Act, 1961, Registration Act, 1908, and Transfer of Property Act, 1882.

Detailed Analysis:

1. Determination of the Correct Year of Taxability of Capital Gains:
The core issue in this appeal was whether the transfer of property, which attracts capital gains tax liability, took place on the date of execution of the sale deed (15.12.2007) or on the registration date (17.04.2008). The Tribunal considered the mandate of section 17(1) of the Registration Act, 1908, which requires compulsory registration of non-testamentary instruments affecting immovable property. Section 49 of the Registration Act states that an unregistered document shall not affect any immovable property or be received as evidence unless registered. The Tribunal concluded that the transfer of property is considered effective from the date of execution of the sale deed, not the registration date. Consequently, the capital gains should be taxed in the assessment year 2008-09, not 2009-10.

2. Validity of the Cancellation of the Sale Deed and Its Impact on Capital Gains Tax Liability:
The assessee contended that the sale transaction was canceled by mutual consent, and hence no transfer took place to attract capital gains tax. However, the Tribunal, in its original order, dismissed this argument, stating that the cancellation was not documented through a registered cancellation deed. The Tribunal held that the sale deed executed on 15.12.2007 was valid, and the capital gains tax liability arose from this transfer. This decision was not re-agitated in the current proceedings, as it had attained finality.

3. Interpretation of Relevant Sections of the Income-tax Act, 1961, Registration Act, 1908, and Transfer of Property Act, 1882:
The Tribunal referred to the judgment of the Hon'ble Supreme Court in CIT vs. Balbir Singh Maini, which clarified that post-2001 amendments, no transfer takes place unless a document is registered. The Tribunal noted that section 47 of the Registration Act, which states that a registered document operates from the date of execution, supports the view that the transfer took place on 15.12.2007. Section 45 of the Income-tax Act, 1961, which is the charging section for capital gains, specifies that gains arising from the transfer of a capital asset are chargeable in the year the transfer took place. Thus, the Tribunal concluded that the capital gains should be taxed in the assessment year 2008-09.

Conclusion:
The Tribunal allowed the appeal, holding that the transfer of the property took place on the execution date of the sale deed (15.12.2007), and the capital gains should be taxed in the assessment year 2008-09. The AO was granted the liberty to take necessary action for taxing the amount in the correct assessment year as per law. The order was pronounced in the Open Court on 17th February 2022.