Non-Realization of Part of Sale Consideration cannot defer Chargeability of Capital Gains to Tax: ITAT [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal held that non realization of sale consideration does not defer chargeability of capital gains unless the transaction itself is cancelled or legally rescinded.

The assessee filed his return of income for the relevant assessment year declaring a total income of Rupees 6.22 lakhs. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) system.

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had entered into transactions for the sale of land situated at Halol. The sale deeds were duly executed and registered during Financial Year 2013-14 for an aggregate consideration of Rupees 1.66 crores.

The AO held that the execution and registration of the sale deeds constituted a “transfer” within the meaning of Section 2(47) of the Income Tax Act, 1961. Accordingly, the AO concluded that the transfer had taken place during Financial Year 2013-14 relevant to Assessment Year 2014-15 and computed Short-Term Capital Gains (STCG) of Rupees 52.38 lakhs, which was added to the assessee’s income.

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the CIT(A), who upheld the action of the Assessing Officer. Hence the assessee approached the Tribunal.

The Authorised Representative (AR) submitted that the assessee had not received full consideration at the time of registration of the sale deeds and possession also remained with the assessee till final realization of payment in April 2015. It was argued that transfer under Section 2(47)(v) of the Income Tax Act could not be said to have been completed merely on execution of sale deed when possession had not been handed over and substantial consideration remained unpaid.

The Departmental Representative (DR), on the other hand, relied upon the orders of the lower authorities and submitted that the sale deeds were duly executed and registered on 12.04.2013. Therefore, according to the Revenue, transfer stood completed during Financial Year 2013-14 itself. The DR further contended that subsequent disputes regarding realization of consideration or delayed receipt of payment would not defer the chargeability of capital gains under the Income Tax Act.

A Division Bench of Dr. B.R.R. Kumar, Vice-President T.R. Senthil Kumar, Judicial Member held that “Registration of a sale deed completes transfer for capital gains purposes. Non receipt of consideration or delayed payment does not defer chargeability unless the transaction itself is cancelled or legally rescinded. Mere retention of possession, or subsequent disputes between parties do not postpone the incidence of capital gains taxation when the registered sale deed continues to remain valid and uncancelled.”

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates