The Income Tax Appellate Tribunal (ITAT), Chennai bench while allowing capital gain exemption held that transfer of property has completed only after extinguishing the rights of owners.

The assessee,  Rajamanikam Meerabai  during the year under consideration i.e., financial year 2005-06 relevant to this assessment year 2006-07, the assessee sold a residential house for a sum of Rs.17.50 lakhs. The Assessing Officer (AO) also noted that the assessee has invested the entire sale consideration for purchase of plot at Tiruvanmiyur and hence, there remains no balance capital gain arising out of the same.

But the AO denied the claim of deduction under Section 54 of the Income Tax Act and computed the capital gain. Assessee raised the first issue before the AO that the sale of property took place on 19.07.2007 i.e, falling in financial year 2007-08 relevant to assessment year 2008-09 and not in assessment year 2006-07 as noted by the AO. Therefore, aggrieved by the order, the assessee filed an appeal  before the Commissioner of Income Tax (Appeals)(CIT(A)) who dismissed the appeal of assessee.

Thus, the assessee filed second appeal before the tribunal. During the proceedings,  N. Arjun Raj, Counsel for assesee argued that  the sale deed is executed on 19.07.2007 and as per the sale deed, the balance final payment of Rs.7.50 lakhs was made on that date i.e., on 19.07.2007 by way of cash.

Then the balance payment of Rs.5 lakhs and Rs. 5 lakhs by way of two drafts was paid at the time of agreement on 11.01.2006. P. Sajit Kumar, Counsel for Revenue supported the order of assessing officers.

The Tribunal relied upon the decision of Supreme Court in the case of CIT vs. Balbir Singh Maini  observed that transfer will complete in regard to property rights whenever owners rights have been extinguished. Therefore, the the rights get extinguished on 19.07.2007 and not on the date of Agreement to sale i.e., 04.02.2006

After reviewing the facts and records, the two-member bench of Manjunatha.G, (Accountant member) and  Mahavir Singh,(Vice President) observed that owner’s right to property ger extinguished on the date of registration of sale deed i.e., 19.07.2007 and the assessment of capital gain can only be made in assessment year 2008-09 and not in this assessment year 2006-07. Therefore, the bench allowed the capital gain exemption.