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Capital gains: when does sale take place?

Capital gains arise on transfer defined under Sec. 2(47) of the Income-tax Act, 1961. Definition of transfer under this section is wider than what is understood as transfer under the Transfer of Property Act, 1882, which, in the case of immovable property, would be with reference to the date of conveyance as per registered document of sale, gift or settlement. But for purposes of capital gains tax, there is deemed transfer to cover possession in pursuance of an agreement for sale in writing under Sec. 53A of the Transfer of Property Act, 1882. Any other mode of transfer of possession with right to enjoyment of property is also covered by the definition. Neither the method of accounting adopted by the assessee nor the date of receipt of consideration would be relevant in this context. A seller may accommodate the buyer by giving credit, but revenue would not wait for collection of tax from the seller on capital gains till receipt of consideration by the seller. In Jasbir Singh Sarkaria In re (2007) 294 ITR 196 (AAR), the Authority for Advance Ruling ruled that the grant of irrevocable general power of attorney with power of sale in pursuance of a development agreement would imply effective possession along with other facts in this case, so as to attract liability as on the date of such possession.

At any rate, mere postponement of receipt does not get liability postponed. Liability would arise either on the date of conveyance or “effective possession”, whichever is earlier, irrespective of the date of receipt of consideration. In the reader’s case, it appears that the sale is registered, so that the period of holding can be reckoned only till that date and not the date of receipt of consideration.

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