The Chennai bench of the Income Tax Appellate Tribunal (ITAT) ruled in favour of granting the capital gain exemption, stating that the transfer of property is considered complete only after the owners’ rights have been extinguished.
In the relevant financial year 2005-06, which pertains to the assessment year 2006-07, the assessee Rajamanikam Meerabai sold a residential house for Rs. 17.50 lakhs.
The Assessing Officer (AO) acknowledged that the assessee had invested the entire sale proceeds in purchasing a plot at Tiruvanmiyur, leaving no balance capital gain. However, the AO denied the deduction claim under Section 54 of the Income Tax Act and calculated the capital gain.
The assessee raised the first issue before the AO, asserting that the property sale took place on 19.07.2007, falling within the financial year 2007-08 relevant to the assessment year 2008-09, rather than in the assessment year 2006-07 as stated by the AO.
Displeased with the AO’s decision, the assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), who dismissed the appeal. Consequently, the assessee filed a second appeal before the tribunal.
During the proceedings, the assessee’s counsel, N. Arjun Raj, argued that the sale deed was executed on 19.07.2007, and the remaining payment of Rs. 7.50 lakhs was made in cash on that date.
Furthermore, two drafts totalling Rs. 5 lakhs and Rs. 5 lakhs were paid at the time of the agreement on 11.01.2006. The Revenue’s counsel, P. Sajit Kumar, supported the Assessing Officers (AO) decision.
The Tribunal referred to the Supreme Court’s decision in the case of CIT vs. Balbir Singh Maini and concluded that the transfer of property rights is deemed complete when the owners’ rights are extinguished.
Therefore, the rights were extinguished dated 19.07.2007 and not on the date of the Agreement to sale i.e., 04.02.2006
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Based on the facts and records, the two-member bench comprising Manjunatha.G (Accountant member) and Mahavir Singh (Vice President) observed that the owners’ rights to the property were extinguished on the date of registration of the sale deed, i.e., 19.07.2007.
Consequently, the assessment of the capital gain could only be made in the assessment year 2008-09 and not in the current assessment year 2006-07. Therefore, the bench granted the capital gain exemption.
| Case Title | Smt. Rajamanikam Meerabai Vs Income Tax Officer |
| Citation | ITA No.: 923/CHNY/2020 |
| Date | 18.10.2023 |
| Assessee by | Shri N. Arjun Raj, C.A |
| Revenue by | Shri P. Sajit Kumar, JCIT |
| Chennai ITAT | Read Order |
