The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that mere ‘agreement to sell’ would not result in the transfer of assets for the purpose of computing the amount of capital gain under the Income Tax Act, 1961.
The assessee is a private limited company and is engaged in the business of real estate development. During the financial year relevant to the assessment year 2008-09, the assessee won the bid for a property and executed a sale deed. While computing the taxable income of the assessee for the relevant year, the Assessing Officer computed capital gain in respect of the property sold.
It was argued on behalf of the assessee that it did not hand over the possession to Shri Ramaiah Reddy, since the agreement to sell was entered for undivided share inland.
While ordering in favor of the assessee, the Tribunal bench comprising Vice President N V Vasudevan and Accountant Member B R Bhaskaranrelied on the decision of the Gujarat High Court in the case of UshabenJayantilalSodhan and held that it is not the case of the AO that the provisions of sec. 53A of the Transfer of Property Act would apply to the impugned transaction. In fact, it is the submission of the assessee that the possession was never given to Shri Ramaiah Reddy.
“Hence, what was entered by the assessee with the above-said person was mere “Agreement to sell”. In the above-said decision, the Hon’ble Gujarat High Court has held that the agreement to sell will not result in the transfer of assets. In that case, there is no question of any extinguishment of right, as held by the AO and confirmed by Ld CIT(A). Hence the question of assessing any capital gain in AY 2008-09 does not arise. In that view of the matter, we are unable to approve the computation of capital gain made by the AO in AY 2011-12 also. Accordingly, the computation of capital gain made by the assessee in AY 2011-12 is upheld,” the Tribunal said.
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