The Kolkata bench of the Income Tax Appellate Tribunal (ITAT), has held that the capital gain exemption cannot be denied to assessee if he entered into an “Agreement to Sale” within one year of purchase of new property. The bench further clarified that the benefit would be available even if the agreement to sale is not a registered one.
In the instant case, the old house has been transferred by the assessee on 27.12.2011 whereas they had purchased new flat on 04.10.2010. Thus the new asset was purchased more than one year prior to the date on which the transaction in respect of the old residential house had been affected. The assessee made a claim for exemption of his capital gain as per Section 54(1) of the Income Tax Act. However, the same been denied by the AO on the ground that the assessee did not purchase the residential flat within one year of sale of the old asset.
The assessee contended that as per the provision of section 2(47) of the Act which defines the term ‘transaction’ which has been given an inclusive definition and as per the said definition, whenever there is an extinction of any right in respect of a capital asset such an extinction would mean transfer of the property. It was submitted that by executing the agreement to sale, a right has been created in favour of the buyer of the property and certain right in respect of the old residential house which the assessee enjoyed had been extinguished and, therefore, the agreement dated 16.09.2011 ought to have been considered as the date of transfer and not the registration date 27.12.2011 as taken by the AO.
The Tribunal noted that as per the definition of ‘transfer’ as defined u/s. 2(47) of the Act it is clear that when any right in respect of any capital assets is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset.
It was further noted that the assessee executed an agreement to sell for Rs. 30 lacs consideration in respect of its capital asset on 16.09.2011 for transferring the old residential house/original asset in question and a sum of Rs. 1 lac in cheque was received as advance consideration though encashed only on 21.11.2011, we note that the said cheque has not bounced/dishonoured.
Allowing the appeal of the assessee, the Tribunal said that “We find force in the claim made by the assessee to claim exemption u/s. 54 of the Act and we hold that once an agreement to sale is executed in favour of vendee, the said vendee gets a right to get the property transferred in his favour by filing a suit under Specific Performance Act and, therefore, some right in respect of the said property (old residential property) belonging to the assessee had extinguished and some rights have been created in favour of the vendee/transferee when the agreement to sale has been executed.”
“We are of the opinion that though the agreement to sell is not registered, the vendee can seek decree of specific performance on the basis of unregistered agreement to sell in accordance to law as laid by the Hon’ble Delhi High Court in Devinder Singh Vs. Hari Singh (decision on 26.04.2017) and Hon’ble M.P. High Court in Akshay Doogad Vs. Dr. Laxmanrao Dhole (decision on 18.08.2015). So as discussed in para 5 & 6 supra, in the facts and circumstances of the case, we allow the appeal of the assessee and direct grant of exemption u/s. 54 of the Act,” the Tribunal said.
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