INCOME TAX ACT, 1961

Section 45

Capital gains - Year of taxability - Flats received by way of an allotement in assessee's favour - Year of allotment vis-a-vis year when possession was acquired

Assessee had received allotment letters towards allotment of two flats pursuant to a development agreement. AO alleged that assessee had received the flats in exchange of property owned by him and therefore, the transaction resulting in capital gain had taken place when the flats were allotted. AO thereafter, assessed the value of both flats as Long-term capital gains. Assessee contended that the liability to capital gains did not arise in relevant assessment year i.e. 2008-09, as the development agreement was entered much prior by assessee (in 2002). Held: The liability to capital gains tax shall arise upon entering development agreement, if assessee has handed over the possession of property and received part consideration. The copy of occupancy certificate showed that assessee had handed over the possession as per the development agreement and the construction itself was completed. All these events have taken place much prior to the financial year relevant to assessment year in question. The assessee also placed copies of electricity bills to show that he had taken possession of flats in the year 2005 itself. These facts showed that the capital gains liability could not, in any case, would arise in assessment year 2008-09. Assessee cannot postpone the capital gains tax liability on account of delay in receipt of sale consideration and on the very same criteria, AO cannot bring capital gains to taxation in the year of receipt of part of sale consideration. Therefore, tax authorities were not justified in placing reliance on the allotment letter given by the developer to the assessee.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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