Section 2(47)(ii) — the law in short
What the courts have decided on section 2(47)(ii), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Seshasayee Steels P Ltd v ACIT
Supreme CourtHelps department
I signed a development agreement and a power of attorney years ago and let the builder start construction. The Department says my capital gain arose only later, when the settlement money came in. Which year is right?
The later year. The Supreme Court dismissed the assessee's appeal and held the transfer took place in assessment year 2004-05. Permission to a builder to enter and construct is a licence, not possession under section 53A of the Transfer of Property Act, so section 2(47)(v) was not attracted on the 1998 agreement to sell. Nor was section 2(47)(vi), because on that date the owner's rights were intact both in ownership and in possession. What effected the transfer was the memorandum of compromise of July 2003, under which the whole consideration was received and the owner's rights were extinguished on encashment of the last cheque.
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Tamal Kundu v Additional/Joint/Deputy/Assistant Commissioner of Income Tax
High CourtHelps taxpayer
I paid the whole price and took possession of a factory under an agreement for sale in December 2016, but the sale deed was only registered in March 2018. Can the department tax the stamp-value difference under section 56(2)(x) in the later year?
No. The Calcutta High Court held that where the entire consideration is paid on the date of the agreement for sale, possession of the property is handed over, and the buyer starts running the business on it, the transfer takes place then and not on the later registration of the sale deed. Section 2(47)(ii) covers extinguishment of the vendor's rights, and section 2(47)(vi) covers any transaction that has the effect of enabling the enjoyment of immovable property. So the purchase of the rice mill fell in the previous year relevant to assessment year 2017-18, and the section 56(2)(x) addition made in assessment year 2018-19 could not stand. The Tribunal's order was set aside.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.