Release of Rights in Co-Owned Property to Be Considered as Transfer on Date of Release Deed | ITAT

Case Details: Narendra Mahendra Kothari vs. Income-tax Officer - [2024] 166 taxmann.com 485 (Chennai - Trib.)

Judiciary and Counsel Details

• V. Durga Rao, Judicial Member & Manjunatha G., Accountant Member
• D. Anand, Adv. for the Appellant.
• ARV Sreenivasan, Addl.CIT for the Respondent.

Facts of the Case

The assessee, along with four other co-owners, purchased land in 2010. Subsequently, the assessee, vide release deed in 2013, released 25% of the right in the property in favour of the remaining co-owners and handed over possession of the property.

However, by way of another document titled Deed of Declaration in 2014, they made certain declarations in respect of the title of the property and consideration paid to the assessee. While furnishing the return of income, the assessee computed long-term capital gain from the transfer of property by considering the date of transfer of property as 2014 with reference to the Deed of Declaration executed by three persons. Accordingly, gain derived from the transfer of said land was declared under the head Long Term Capital Gain.

The Assessing Officer (AO) assessed gain by considering the date of transfer as per the Release Deed in 2013, as the assessee had released rights in the property. Since the period of holding of the asset by the assessee from 2010 to 2013 was less than 36 months, the AO assessed the profit as Short Term Capital Gain. Accordingly, the deduction claimed under section 54/54F was also rejected.

On appeal, the CIT(A) sustained the additions made by the AO. Aggrieved by the order, an appeal was filed to the Chennai Tribunal.

ITAT Held

The Tribunal held that there was no dispute regarding the facts of the case. The assessee released its right to the property in favour of the remaining co-owners through a Release Deed in 2013. As per the recitals of such a Release Deed, there was no dispute regarding the fact that the assessee had received consideration and also handed over possession of the property to the releasees on the very same day.

Thus, it was undoubtedly clear that the transfer, as defined under section 2(47) of the Income-tax Act read with section 53A of the Transfer of Property Act, 1882, was satisfied on the execution date of such release deed. If one considers the date of purchase of the property and such Release Deed, then the period of holding of an asset by the assessee is less than 36 months.

It was held that the Deed of Declaration was a unilateral document, wherein a declaration was made by the releasees of which the assessee was not a party. Further, as claimed in the Deed of Declaration, what was the problem in handing over the possession of the property was not proved. In any way, transfer as per section 2(47) occurs when conditions are satisfied as per section 53A of the Transfer of Property Act, 1882.

Therefore, the property transfer occurred on the date the assessee released his right to the property through a Release Deed in 2013. The gains derived from property transfer were categorised as Short Term Capital Gains. Accordingly, it was held that the deduction claimed under section 54/54F was rightly rejected.