Registered Sale Deed Triggers Capital Gains Tax Even If Payment Is Delayed: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 27 June held that execution and registration of a sale deed complete “transfer” for capital gains taxation purposes, and that delayed payment or dishonour of cheques does not postpone taxability unless the transaction itself is cancelled.

Vice President Dr. B.R.R. Kumar and Judicial Member T.R. Senthil Kumar passed the order in an appeal filed by Mehboob Jabir Patel. The Bench, however, directed the Assessing Officer to grant consequential relief if the same capital gains had already been taxed in Assessment Year 2016-17, to avoid double taxation. It held:

“Registration of a sale deed completes transfer for capital gains purposes. Non-receipt of consideration or delayed payment does not defer chargeability unless the transaction itself is cancelled or legally rescinded.”

Mehboob Jabir Patel challenged the addition of Rs. 52.38 lakh as short-term capital gains for Assessment Year 2014-15. The dispute arose from the sale of land situated at Halol, where the parties executed and registered sale deeds on 12 April 2013 for a total consideration of Rs. 1.66 crore.

Before the Assessing Officer, Patel submitted that the purchasers had not paid a substantial portion of the sale consideration and had dishonoured several cheques. He stated that he continued to hold possession of the property until final payment in April 2015.

He relied on a legal notice issued on 8 November 2013 and a confirmation deed dated 17 December 2015 to argue that the transfer took place only in Financial Year 2015-16 relevant to Assessment Year 2016-17. He accordingly offered the capital gains to tax in Assessment Year 2016-17.

The Assessing Officer rejected the claim and held that the transfer under Section 2(47) of the Income Tax Act stood completed once the sale deeds were executed and registered. The Commissioner of Income Tax (Appeals) upheld this view.

Before the Tribunal, Patel argued that he had not handed over possession at the time of registration and had not received full consideration. The Revenue contended that the registered sale deeds conclusively established transfer in Financial Year 2013-14.

The Tribunal held that subsequent disputes over payment or dishonour of cheques cannot defer capital gains taxability. It noted that no competent authority had cancelled or annulled the registered sale deeds.

It further stated that “mere retention of possession, or subsequent disputes between parties do not postpone the incidence of capital gains taxation when the registered sale deed continues to remain valid and uncancelled.”

At the same time, the Tribunal accepted Patel's alternative plea to avoid double taxation. It directed the Assessing Officer to verify whether the capital gains had already been assessed in Assessment Year 2016-17 and to grant relief in accordance with law.

Accordingly, the ITAT partly allowed the appeal for statistical purposes.