Talwalkars Fitness Club vs. ACIT-21(2);
dated 27/05/2015 ; ITA. No 7246/Mum/2014, Bench: E ; AY 2008-09
Mum. ITAT ]
Section 45: Capital gains-Transfer-Capital
gains are levied in the year in which the possession of the asset and all other
rights are transferred and not in the year in which the title of the asset gets
transferred. [Section 2(47), Transfer of Property Act, 1953]
During the assessment
proceedings, the A.O noticed that the assessee had disposed of two premises
each measuring 1635 sq. ft. for a total consideration of Rs.4,40,00,000/- by
way of two separate agreements to sale. The AO observed that the assessee had not
offered capital gains arising out on such sale. On being asked to explain, the
assessee submitted that though the agreements to sale were executed during the
financial year relevant to assessment year 2011-12, however, the actual sale
took place in the subsequent year and the capital gains were accordingly
offered in subsequent assessment year 2012-13, which had been accepted by the
department also. The assessee further explained that the assessee had not
parted with the possession of the property in question during the year under
consideration.
The AO, however, did not
agree with the contentions of the assessee. He observed that the property was
transferred by way of two registered sale agreements both executed on
14.02.2011 i.e. during the year under consideration. The said agreements were
duly registered with the stamp duty authorities. The sale agreement in question
was not revokable. The handing over of the possession of the property on a
future date was a mere formality. He therefore held that the transfer of the
property took place on the date of agreement and thus the capital gains were
liable to be assessed during the year under consideration.
In appeal, the Ld. CIT(A),
while referring to the wording of the some of the clauses of the agreement dated
14.02.11, upheld the findings of the AO that the capital gains arising from the
sale of the said property would be liable to be assessed in the A.Y. 2011-12.
Aggrieved by the order of
the Ld. CIT(A), the assessee filed appeal before ITAT. The Tribunal held that
the assessee has taken us through the different clauses of the agreement dated
14.02.11. He has submitted that though, the reference to the parties in the
agreement has been given as vendors and purchasers, however, it was an
agreement to sell and not the sale deed itself. As per the separate agreements,
each of the property had been agreed to be sold for a consideration of
Rs.2,20,00,000/. Only a token amount of Rs.20,00,000/- was received as advance.
However, the balance consideration was agreed to be paid by 26.05.11. The
possession of the property was not handed over to the prospective purchasers.
The sale transaction was deferred for a future date on the payment of balance
consideration of the amount of Rs.2 crore and therafter the possession was to
be handed over to the prospective purchasers.
The assessee continued to
enjoy the possession of the property even after the execution of the agreement
and was liable to handover the possession on receipt of the balance
consideration amount. It was also
observed that the advance received by the assessee of Rs.20 lakh was
less than the 10% of the total consideration amount settled. The assessee was
not under obligation to handover the possession of the property till the
receipt of the balance consideration of the amount. The assessee was liable to
pay the due taxes on the property and was also liable for any type of loss or
damage to the property till it was handed over to the prospective purchaser
after receipt of balance sale consideration. The sale transaction was completed
on 16.06.11 and till then the assessee continued to be the owner in possession
of the property. The assessee has already offered the due taxes in the
subsequent year relevant to the financial year in which the sale deed was completed
and the possession was handed over by the assessee to the purchasers, which has
also been accepted by the department. Hence, there was no justification on the
part of the AO to tax the assessee for short term capital gains for the year
under consideration. In the result, the appeal of the assessee is hereby
allowed.
Aggrieved
by the order of the ITAT, the Revenue filed appeal before High Court. The Court
held that the Tribunal applied the
correct legal principles and construed the clauses in the agreement, otherwise
than as understood by the A.O and the Commissioner. Such findings of fact can
never be termed as perverse for they are in consonance with the materials
produced before the Tribunal. Accordingly Revenue appeal was dismissed.
