Everybody has a question when they sale their property. And the question is whether Capital Gain is taxable when they execute an agreement or when they execute a sale deed. For this we have to go through some of the Income tax provisions to have clear understanding about the timing of the Capital gain taxability.
As per section 45 of IT act i.e. scope and year of chargeability any profits or gains arising from the transfer of capital asset affected in the previous year shall be chargeable to Income tax under this head in the previous year in which the transfer took place.
In other words, for determining the year of chargeability, the relevant date of transfer is not the date of agreement to sell but the actual date of sale, However, Income tax act has recognised certain transactions as transfer in spite of the fact that conveyance deed might not have been
executed and registered.
Now the question arises what is transfer. So for the purpose of this analysis transfer definition defined here which is as follows:-
As per section 2(47),Transfer means
a. Possession of an immovable property in consideration of part-performance of a contract referred in section 53A of the transfer 53A of the transfer of Property Act, 1882.
b. Transactions which have effect of transferring or enabling the enjoyment of an immovable property.
c. Explanation 2 to section 2(47) clarifies that ‘transfer’ includes and shall be deemed to have always included –disposing of or parting with an asset or any interest therein or Creating any interest in any asset in any manner whatsoever directly or indirectly,
absolutely or conditionally, voluntarily or involuntarily by way of an agreement or otherwise.
After this Consideration come into the picture which is defined by section 50C which says:-
It has been provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of computing the full value of consideration.
However, where the stamp duty value does not exceed 105% of the sale consideration received or accruing as a result of transfer, the consideration so received or accruing shall be deemed to be the full value of consideration.
Therefore, from the above provisions we can conclude here that Capital Gain Taxability shall arise on the date of agreement if it satisfies the conditions given under 2(47).And in the case of Sanjay Lal vs CIT Supreme Court held that when an agreement was executed, a right in personam was created in favour of the vendee and the vendor was restrained from selling the property. Thus, the transfer would be effective from the date of agreement to sale.