Section 50C & Section 54 – MOU vs Registration Date | ITAT Mumbai




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Section 50C & Section 54 – MOU vs Registration Date | ITATba Mumbai 

Facts:
1. The assessee, an individual, was allotted a residential flat in February 2004 and was placed in possession thereof. In March 2005, he entered into a Memorandum of Understanding (MOU) for sale of the said flat for a total consideration of ₹1.60 crore.

2. The entire sale consideration was received through account payee cheques during FY 2005–06, and possession was handed over to the purchaser.

3. However, owing to procedural delays, including obtaining society NOC and government approvals, the registered transfer deed could only be executed in November 2011. At the time of registration, the stamp valuation authority adopted a value of ₹2.38 crore.

4. In the return of income for A.Y. 2012–13, the assessee offered long-term capital gains (LTCG) based on the agreed consideration of ₹1.60 crore and claimed deduction under Section 54 in respect of investment made in a new residential flat in 2012.

5. The AO invoked Section 50C and adopted the stamp duty value of ₹2.38 crore as the deemed sale consideration, considering the date of registration (2011) as the date of transfer and treated the gains as short-term capital gains (STCG) and denied the Section 54 deduction, on the ground that the investment was not made within the prescribed period from the date of receipt of consideration.

ITAT Mumbai held as below:
1. The first proviso to Section 50C(1), inserted by the Finance Act, 2016, is a beneficial provision intended to mitigate hardship arising from delays in registration. Accordingly, it has to be applied retrospectively.

2. In the present case, since the consideration was fixed and substantially received at the time of execution of the MOU in 2005, the stamp duty value as on the date of MOU ought to be considered for the purpose of computing capital gains.

3. The assessee had been in possession of the property since 2004. Accordingly, the period of holding exceeded 36 months.

4. The treatment of the gain as short-term by the Assessing Officer was held to be incorrect. The asset was rightly to be treated as a long-term capital asset, and the gain as LTCG.

5. The date of execution of the registered transfer deed is to be regarded as the date of transfer for the purpose of computing the time limit for reinvestment. Since the assessee had invested in a new residential property within the prescribed period from such date, the claim under Section 54 was allowable.