Date of handing over the physical possession of the property can be treated as the ‘date of transfer’ for Capital Gain exemption: Bombay HC [Read Judgment]

A two judge bench of Bombay High Court in Commissioner of Income Tax vs. Dr. Arvind S. Phake held that the date of transfer of property can be taken as the date of handing over the physical possession of the property for granting the Capital gain exemption under the Income Tax Act.

The main issue framed by the court while considering the appeal was whether ITAT was correct in holding, the date of transfer as the date of handling over of physical possession of the property by the assessee, as against the date of Execution of Development Agreement along with irrevocable General Power of Attorney.

A return was filed by the respondent-assessee declaring his income on account of Long Term Capital Gain on sale of immovable property, income from business and profession of the medical practitioner and other sources. The dispute before the Appellate Tribunal was in respect of part disallowance of exemption claimed by the assessee under Section 54EC of the Income Tax Act, 1961 while computing the Long Term Capital Gain on the sale of immovable property.

The real dispute before the Appellate Tribunal was in relation to the claim of deduction under section 54EC. The investment of Rs.50,00,000/- was made in the Bonds of NHAI on 28th March 2008 and Rs.50, 00,000/in the Bonds of REC Ltd. on 22nd August 2008. The Assessing Officer held that investment in the bonds of NHAI was within the period specified under Section 54ECof the Act and the investment of Rs.50, 00,000/ made in the bonds of REC Ltd. was beyond the period provided in the said provision inasmuch as the investment made on 22nd August, 2008 was not within six months from the date of the transfer of assets. The finding recorded by the Appellate Tribunal in the impugned judgment and order is that the physical possession of the property was given by the respondent-assessee to the developer on 1st March 2008.

The Appellate Tribunal had observed that on the date of execution of the development agreement as full consideration was admittedly not paid; the contention of the department that the transfer was effected on 13th September 2007 cannot be accepted.

The learned counsel for the appellant submitted that considering the terms and conditions incorporated in the development agreement; the date of transfer for the purposes of Income Tax Act ought to have been taken as 13th September 2017, when the agreement was executed.

The learned counsel for the respondent pointed out that since the possession was handed over by the respondent-assessee to the developer on 1st March 2008 and that the entire consideration under the development agreement was received by the respondent-assessee only on the said date.

The bench comprising of Justice A. S. Oka and Justice A. K. Menon, observed “Admittedly, on the date of execution of the development agreement, the entire consideration was not received by the respondent-assessee. The physical possession of the property subject matter of development agreement was parted with by the respondent-assessee on 1st March 2008. It was held that on that day, complete control over the property was passed on to the developer. After having perused the various clauses in the agreement and the aforesaid factual aspects, the Tribunal has taken 1st March 2008 as the date of transfer. This finding is fully consistent with the law laid down by the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia (supra). Therefore, no fault can be found with the impugned judgment of the Tribunal when it was held that the investment made in the sum of `.50, 00, 000/- by the respondent-assessee on 22nd August. 2008 was within the period specified under Section 54EC of the said Act.”

Dismissing the departmental appeals, the court upheld the decision of the Tribunal.