2023 (6) TMI 1489 - AT - Income Tax

Addition u/s 56(2)(vii) - possession of a property - year of transfer - transfer within the meaning of Section 2(47) - deemed gift u/s 56(2)(vii)(b) - difference between the valuation (for the stamp duty purpose) vis- -vis purchase cost disclosed by the assessee in the deed - deemed as income of the assessee or not? - HELD THAT - Originally the assessee has entered into agreement for purchase of the above flat with the developer in 2010. She has made complete payments up to October 2012 thereafter she got the possession on 09.01.2013. She installed her electricity connection in her name. All these factors would indicate that transfer within the meaning of Section 2(47) of the Act had completed. Only Conveyance Deed has been registered during the accounting period relevant to AY 2015-16. Once it is construed that transfer has been completed in the year 2013 itself then no deemed gift u/s 56(2)(vii)(b) of the Act is to be determined in the hands of the assessee. Accordingly we allow the appeal of the assessee and delete the addition. Appeal of assessee allowed.

Summary

ISSUES:

Whether the difference between the stamp duty valuation and the purchase cost disclosed in the deed constitutes income taxable under Section 56(2)(vii) of the Income Tax Act, 1961.Determination of the point in time when "transfer" of immovable property occurs within the meaning of Section 2(47) of the Income Tax Act for the applicability of Section 56(2)(vii).Whether the provisions of Section 56(2)(vii)(b) apply when possession and payment are completed prior to the operative financial year but registration occurs later.

RULINGS / HOLDINGS:

The difference between the stamp duty valuation and the purchase price disclosed in the deed does not constitute taxable income under Section 56(2)(vii) if the transfer of property is held to have occurred prior to the financial year 2014-15."Transfer" within the meaning of Section 2(47) is to be construed as occurring when possession of the property is taken, not merely on registration of the conveyance deed.Where possession and full payment were completed before the financial year 2014-15, the amended provisions of Section 56(2)(vii)(b), effective from FY 2014-15, do not apply; instead, the pre-amended provisions govern the transaction.Accordingly, no deemed gift income arises under Section 56(2)(vii) in respect of the difference in valuation if the transfer is deemed to have taken place prior to the operative date of the amendment.

RATIONALE:

The Court applied the definition of "transfer" under Section 2(47) of the Income Tax Act, which includes "the extinguishment of any rights therein" and recognizes transfer upon execution of an agreement to sell and taking possession.Explanation 2 to Section 2(47), inserted retrospectively from 1.4.1962, clarifies that transfer includes disposing of or parting with an asset by way of an agreement.The Court relied on the precedent that possession and substantial completion of payment constitute transfer, even if registration occurs later, referencing the judgment of the Hon'ble Allahabad High Court and ITAT Ranchi Bench decisions.The Court noted that Section 56(2)(vii)(b) was amended by the Finance Act, 2013, effective from FY 2014-15, expanding its scope to include inadequate consideration; however, this amendment does not apply retrospectively to transactions where possession and payment were completed earlier.This interpretation avoids taxing transactions as deemed gifts where the substantive transfer occurred prior to the amendment's operative date, thereby respecting the temporal applicability of the law.