No Tax on Old Deal done prior to enactment of law: ITAT Rules Section 56(2)(x) Cannot Apply Retrospectively

 

In a significant ruling protecting taxpayers from retrospective taxation, the Tribunal in Rinki Singh (ITA No. 56/Ran/2025) has held that Section 56(2)(x) cannot be invoked where the original property purchase agreement predates the provision, even if the sale deed is registered later.

The decision provides much-needed clarity in cases where property transactions span multiple years, especially common in builder-buyer arrangements.

Background of the Case

The Assessing Officer reopened the assessment for AY 2018–19 and made an addition of ₹21,11,500 under Section 56(2)(x).

The basis of addition was that the stamp duty value of the flat exceeded the consideration shown in the registered sale deed.

As per Section 56(2)(x), such difference is treated as income in the hands of the buyer.

Assessee’s Explanation

The assessee clarified an important factual aspect.

The flat was not purchased in 2018 as assumed by the department. Instead:

•  The flat had been booked in 2010 by her husband

•  The purchase agreement was executed with the builder at that time

•  Payments were also made in 2010

•  The sale deed was registered in 2018 in the assessee’s name to avail concessional stamp duty benefits available to women

Thus, the substance of the transaction related back to 2010.

Core Issue Before the Tribunal

The key question was:

–  Can Section 56(2)(x), introduced later, be applied to a transaction whose agreement was executed before the provision came into force?

This raised the issue of retrospective vs prospective application of tax provisions.

Tribunal’s Key Finding

The Tribunal ruled in favour of the assessee and deleted the addition.

It held that the relevant date for applying Section 56(2)(x) is the date of the agreement, not merely the date of registration of the sale deed.

Since the agreement was executed in 2010, when Section 56(2)(x) was not in existence, the provision could not be applied.

Substance Over Form Principle Applied

The Tribunal effectively applied the principle of substance over form.

While the legal title may have been registered in 2018, the real transaction and financial commitment had already taken place in 2010.

Taxation cannot be imposed by ignoring the actual substance of the transaction.

No Retrospective Taxation

The ruling reinforces a fundamental principle of tax law:

–  Charging provisions cannot be applied retrospectively unless expressly provided

Section 56(2)(x) does not have retrospective application. Therefore, it cannot be used to tax transactions that were effectively completed before its introduction.

Practical Implications for Property Buyers

This decision is highly relevant in cases involving:

•  Builder-buyer agreements executed years before registration

•  Delayed possession and registration

•  Change in ownership name at the time of registration

•  Stamp duty valuation differences

Taxpayers can rely on this ruling to argue that date of agreement should be considered for taxability, especially where payments were made earlier.

Important Takeaway

The Tribunal’s ruling makes it clear that:

•  Section 56(2)(x) applies prospectively

•  Agreement date holds significant importance

•  Registration date alone cannot determine taxability

Conclusion

The decision in Rinki Singh’s case is a welcome relief for taxpayers dealing with long-term property transactions.

It prevents unfair taxation arising purely due to timing differences between agreement and registration.

For professionals, it highlights the importance of examining the entire transaction timeline, rather than relying solely on the sale deed.

In tax law, as this case demonstrates, the real story lies in the facts-not just in the documents executed later.

 The copy of the order is as under:

1772698418-EgphpZ-1-TO