|QUERY:||‘P’ had to sold her property in order to finance her daughter’s medical expenses.
The agreement for sale was entered for Rs. 50/- lakh. She received only Rs. 35/- lakh due to dispute with the buyer. No possession of the property was given. She does not have money to invest in order to claim exemption u/s. 54. The AO passed the order levying tax on Rs. 50/- lakh. Whether AO is right?
|ANSWER:||In this case transfer is not complete, because of property has not been given and therefore there is no question of investing in another house to claim exemption under section 54.
In Chaturbhuj Dwarkadas Kapadia v. CIT [260 ITR 491] the Bombay High Court has held that clauses (v) and (vi) were introduced in section 2(47) of the Income-tax Act, 1961 with effect from April 1,1988. They provide that transfer includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1982 and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Till then, no liability to capital gains arise.
The Bombay High Court reiterated the aforesaid view in CIT v. Geetadevi Pasari [17 DTR (Bom) 280]. The Court held that the relevant assessment year for the purpose of computation of capital gains will be the assessment year in which the assessee was actually put in possession.
Thus, on the basis of above judgments it is clear that AO is not right in levying tax on Rs. 50/- lakh.
|EXPERT:||CA. H. N. Motiwalla|
|SECTION(S):||2(47), 45, 54|
|CATCH WORDS:||capital gains, transfer|
Opinion Of Eminent Legal Luminaries On Controversial Issues
When Does A Transfer Take Place In An Agreement For Sale Of Immovable Property For Capital Gains Purposes?
Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org