LTCG to be computed on the basis of Guidance Value of Property as on date of Sale Agreement, not on date of Sale Deed: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the long term capital gains (LTCG) to be computed on the basis of guidance value of the property as on date of Sale Agreement, not on the date of Sale Deed.

The assessee, Mr. Prakash Chand Bethala has entered into a sale agreement and a major portion of the consideration has been received by the assessee mentioned in the Sale Agreement through account payee cheque, and possession of the property was also handed over to Sri R.K. Sipani, which was mentioned in the clause of sale agreement.

The Purchaser has not paid anything more than the value mentioned in the Sale Agreement. Further by way of Agreement right over the property has been transferred from the Vendor to Purchaser. The only pending was the actual registration of the Sale Deed.

In other words, at the time of Agreement of Sale in respect of this immovable property, a right in persona is created in favour of the Purchaser. When such a right is created in favour of the Purchaser and the Vendor is restrained from selling such property to someone else because the Purchaser, in whose favour right in persona is created, has legitimate right to enforce such specific performance of the agreement if the Vendor for some reason or other has not executed the Sale Deed.

Thus by virtue of Agreement of Sale, some right is given to the Vendee by the Vendor. It is an encumbrance on the property. At this stage, it is appropriate to mention that the provisions of section 50C(1) of the Act, according to which, if there is a gap between the date of execution of Sale Agreement and the Sale Deed and if the guidance value changes, the guidance value as on the date of Agreement has to be considered as the full consideration of the capital asset.

In the present case, the enforceable agreement was entered by payment of major portion of the Sale Consideration and only formal Sale Deed was executed later on. The assessee has produced all the relevant documents for demonstrating the authenticity of the Sale Agreement with corroborative evidence in the form of Khata Certificate in the name of M/s. KPCBPPL before the Registrar of Companies and the payment details through Cheques.

The payment mentioned in the Sale Deed towards sale consideration clearly demonstrated that these payments have been passed between the parties vide Sale Agreement and possession of property has already been handed over.

The coram consisting of George George K and Chandra Poojari held that the transfer has taken place to vide Sale Agreement and full value of consideration for the purpose of computing long term capital gain in the hands of the assessee has to be adopted on the basis of guidance value of this property as on the date of Sale Agreement only, not on the date of Sale Deed.

“Accordingly we allow the grounds taken by the assessee as there was no applicability of section 50C in the year 2007-08,” the ITAT said.

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