If a provision was not available in the statute at the time of entering into the agreement, it cannot be applied subsequently: Nagpur ITAT
The Income Tax Appellate Tribunal (ITAT), Nagpur Bench, recently delivered a noteworthy judgment in Bhavesh Suresh Sejpal v. Income Tax Officer, Ward-3, Nagpur (ITA No. 467/Nag./2024), reinforcing the principle of prospective application of tax laws, specifically concerning Section 56(2)(vii)(b) of the Income Tax Act, 1961, in the context of property transactions.
This decision reiterates the basic fundamental principle regarding the timing of tax liabilities in property deals and the relevance of agreements to sale.
The case centred on the assessment year 2014-15, where the Assessing Officer sought to tax the difference between the stamp duty value and the actual purchase price of a property. The assessee had executed a registered agreement to sale on May 29, 2012, for ₹25.92 Lakh, while the sale deed was registered on March 15, 2014, with a stamp duty valuation of ₹42.84 Lakh. The Assessing Officer applied Section 56(2)(vii)(b), introduced by the Finance Act, 2013, with effect from April 1, 2014, to tax the differential amount.
However, Assessee argued against this retrospective application, contending that the provision was not in effect when the registered agreement to sale was executed in 2012. The core of the assessee’s argument rested on the principle that tax liability should be governed by the law prevailing at the time of entering into the transaction.
The ITAT Nagpur’s decision was significantly influenced by a precedent from its Visakhapatnam Bench in ACIT v. Sri Anala Anjibabu (ITA No. 415/Viz./2019). In Anala Anjibabu, the Tribunal had held that Section 56(2)(vii)(b)(ii) could not be applied when the agreement to purchase was executed before the provision came into force. The ITAT Nagpur emphasized this, stating that “if a provision was not available in the statute at the time of entering into the agreement, it cannot be applied subsequently.”
The Tribunal also drew upon the ratio of M. Siva Parvathi & Ors. v. ITO [129 TTJ 463, 7 ITR 0468], cited by the assessee, which, although related to Section 50C, was deemed to have persuasive value due to the similar nature of the provisions. In M. Siva Parvathi, the ITAT had ruled against the retrospective application of Section 50C, noting that the law at the time of the agreement should prevail.
Further, the assessee’s submission also included reliance on D.S.N. Malleswara Rao v. ITO (I.T.A. No. 538/Viz/2018), where it was held that the applicable law for taxing income is the law existing on the date of the agreement.
The ITAT Nagpur also favourably mentioned the decision of Hon’ble Supreme Court in the case of CIT Vs. Vatika Township Pvt Ltd [CIVIL APPEAL NO. 8750 OF 2014] which has made following observation
“unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation”.
Drawing upon these precedents and the submissions made, the ITAT Nagpur concluded that Section 56(2)(vii)(b) could not be applied retrospectively to the assessee’s transaction. The Tribunal’s order explicitly upholds the principle that tax laws are generally prospective, ensuring fairness and protecting the legitimate expectations of taxpayers.
This ruling provides welcome clarity for taxpayers involved in property transactions where there is a time gap between the agreement to sale and the final sale deed, particularly concerning the applicability of Section 56(2)(vii)(b) or even section 50C.
The copy of the order is as under:
