Sale deed done with Post Dated Cheque & Year of Taxation

 

The year of taxation of capital gain is often the question wherein the sale deed is done by obtaining post dated Cheque (PDC). There are instances wherein the sale deed is executed in one year and the sale deed is done in subsequent year.

The exchequer don’t have just the right to collect the income tax but has the right to collect it in the “correct assessment year”.

It is the year in which the sale deed is executed which is the year which is relevant for levy of the tax. At the time of execution of the sale deed, the property get transferred. The registration don’t actually effect the transfer in real terms which is already effected at the time of execution.

The year of taxation wont get affected by the fact that the sale deed is executed with PDC or the amount was not received at the time of the execution of the sale deed.

Here is an interesting case before Pune ITAT which has decided the issue as under:

 

ITAT PUNE

SMT. BEENA SHAMMI CHAUDHARI

VERSUS

ITO, WARD 6 (4) , PUNE:-

ITA No.1849/PUN/2018

Dated.- February 17, 2022

Short overview of the case:

• The issue was Capital gain computation & taxation vis a vis transfer of asset u/s 2(47) & year of its assessment

• The crux of the issue was whether the transfer, to attract capital gains tax liability, took place on the date of execution of sale deed on 15.12.2007 or on the registration of sale deed on 17.4.2008? The sale deed was done with PDC in this case.

ITAT held as under:

1. Section 45 is the charging section for levy of capital gain tax.

2. As per section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54 etc., be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

3. Manifestly, income under this head becomes chargeable to tax in the year in which the transfer takes place.

4. ‘Transfer’ takes place only when it becomes operational, that is, on executing the sale deed – neither before it, that is, when the parties are in the process of negotiations, nor after it, that is, when the registration of the deed actually takes place.

5. Sale deed, even though registered on 17.04.2008, was admittedly executed on 15.12.2007, which date falls in the previous year relevant to the A.Y. 2008-09 and, as such, the amount of capital gain becomes chargeable to tax in such preceding assessment year.

6. Since the ‘transfer’ of the property took place on execution of sale deed in the preceding year, we hold that the amount of capital gain cannot be charged to tax for the A.Y. 2009-10 under consideration.

7. On a specific query, the ld. AR candidly admitted that no capital gain was offered for taxation by the assessee in her return for the A.Y. 2008-09 or any other year.

8. It was held that AO is at liberty to take necessary action for taxing the amount in the correct assessment year as per law. Assessee appeal is allowed.

The key observation of the ITAT at Para 7 was as under:

“The perusal of the clauses cited hereinabove clearly show that the rights, title and possession of the property has been transferred by the assessee in favour of the purchaser. Before me, it is assessee’s contention that since the post dated cheques were not honoured by the purchaser, it could not be stated that the sale is complete. Before me, no material has been placed by the assessee to demonstrate that the post dated cheques given by the purchasers were deposited by the assessee and thereafter it were returned unpaid by the bank. I further find that the contention of the Ld.CIT(A) that the deed of cancellation has not been registered has not been controverted by the assessee. During the course of hearing, a query was raised about the position of the cancellation deed to 8 ITA No.1849/PUN/2018 which it was submitted that cancellation deed has not been executed till date and therefore the amount of Rs.10 lacs has also not been refunded. Further the decisions relied upon by assessee are distinguishable on facts and are not applicable to the present case as in none of those cases, it was case where the possession and complete ownership was transferred. Considering the totality of the aforesaid facts, I find no reason to interfere with the order of Ld.CIT(A). Thus, the ground of assessee is dismissed.”

The copy of the order is as under:

Sale deed done with Post Dated Cheque & Year of Taxation