Capital Gain Chargeable in Year of Property Transfer, Not Registration: Analysis of ITAT Bangalore Ruling in Prakash Chand Bethala (HUF) Vs ITO

Background and Context

The decision in Prakash Chand Bethala (HUF) Vs ITO (ITAT Bangalore) examines a recurring controversy in capital gains taxation: when does “transfer” of an immovable property actually occur for the purpose of charging capital gains – on the date of sale agreement or on the subsequent date of registration of the sale deed?

The dispute related to a property transaction where the sale agreement was executed on 08.03.1993 for a consideration of Rs. 9,80,500, while the registered sale deed was executed much later, on **09.03.2007. By the time of registration, the **stamp duty/market value** of the property had significantly increased and was adopted at Rs. 2.7 crore` for stamp duty purposes.

The central question was:

  • Should long-term capital gains be taxed in Assessment Year 2007-08 (the year of sale deed registration) using the higher stamp duty value as per Section 50C,
  • Or should the transfer be regarded as having occurred in Assessment Year 1993-94, corresponding to the date of the original sale agreement, with valuation applicable to that earlier date?

The Bangalore Bench of the Income Tax Appellate Tribunal ultimately held that the transfer took place on 08.03.1993, and consequently, capital gains, if any, were chargeable in Assessment Year 1993-94, not in Assessment Year 2007-08. On this basis, the Tribunal deleted the capital gains addition of Rs. 26.08 lakh made in Assessment Year 2007-08.

Chronology of Events

Initial Transaction and Assessment

  1. Sale agreement

    • Date: 08.03.1993
    • Agreed consideration: Rs. 9,80,500
    • Property: Immovable property located under the jurisdiction of Sub-Registrar, Koramangala

  2. Registered sale deed

    • Date: 09.03.2007
    • Stamp duty / guidance value as on 09.03.2007: Rs. 2.7 crore

  3. Original assessment under Sections 143(3) r.w.s. 147

    • Date of order: 12.07.2013
    • The Assessing Officer treated the transaction as giving rise to long-term capital gains in Assessment Year 2007-08.
    • For computing capital gains, the AO adopted the stamp duty value as on the date of registration (09.03.2007) in terms of Section 50C.
    • Long-term capital gains were consequently computed at a substantially higher amount based on Rs. 2.7 crore as the deemed sale consideration.

  4. First appeal before the Commissioner of Income Tax (Appeals)

    • The assessee challenged the adoption of stamp duty value as on 09.03.2007 and the year of taxability.
    • The CIT(A) upheld the addition, confirming the AO’s computation of capital gains in Assessment Year 2007-08.

First Round Before ITAT: Transfer Date and Applicability of Section 50C

The matter then reached the ITAT Bangalore in the first round of appellate proceedings. The Coordinate Bench passed its order on 28.01.2021.

Key Findings of the Coordinate Bench (Earlier ITAT Order)

The Tribunal, in its earlier order, reached two critical conclusions:

  1. Date of transfer
    • The Tribunal held that the transfer of the property occurred on 08.03.1993, which is the date of the sale agreement.
    • Consequently, for the purpose of computing capital gains, the relevant assessment year would be Assessment Year 1993-94, not Assessment Year 2007-08.