The Court began its deliberations by analysing the contested provision. Under this provision, the sale of a franchise cannot be treated as a sale or exchange of assets if the transferor retains substantial power, right or continued interest in the transferred franchise. § 50C of the Act is a special provision for determining the full value of the consideration in the event of a transfer of immovable property. It provides that, where the agreed consideration against the transfer of land or buildings or both is less than that which may be accepted, valued or valued by the stamp assessment authority for the purpose of paying stamp duty in respect of that transfer, the value thus assumed, retained or valued shall be considered to be the total value of the consideration; and capital gains are calculated on the basis of this consideration, in accordance with Article 48 of the Income Tax Act. Taking into account the above discussion and in accordance with section 45 r.w.s 2(47), 50C, it can be concluded in the above scenario (example), that the transfer will take place on 01.12.2017 and that the valuation of stamp duty of Rs 1,80,000 will be taken into account as selling consideration for the calculation of capital gains, since the property will be received by the buyer during the sale agreement and the consideration for the sale will be paid by account checks. Similarly, business income under Section 43A of the Act would be taxable at Rs 1,80,000. The Mumbai HC decision has a wider impact on the taxation of capital gains on the sale of real estate. As regards the year in which profits from the sale of a particular asset become taxable, this decision has no impact as long as the date of registration and the date of the final transfer fall within the same financial year. However, it may affect the determination of the period for which a given asset was held by the seller on the day of the sale/transfer. This is the date on which all the conditions indicated in the sales contract are met.
In order to qualify a property as long-term capital, account must currently be taken of the profits from which exemptions may be granted and the reduced rate, the date of transfer provided for on the basis of the agreement. Given that the contracts qualified as deductibles and that the taxpayer did not retain shares in the franchises and did not receive payments in the event of a potential payment, the Tribunal found that the sale transaction had not been used for capital gains treatment. M/s Talwalkars Fitness Club had agreed to sell an apartment for Rs 2.2 Crores and received an advance of Rs 20 Lakhs against the deal. The sale agreement was concluded on 14 February 2011 and duly registered. The agreement contained a clause stating that the sale/transfer takes effect if the full consideration of Rs 2.2 crores is paid. In accordance with the terms of payment of the agreement, the final payment should be made before 26 May 2011, i.e. in the following financial year. In accordance with the contractual conditions, ownership of the property was also transferred upon full payment of the consideration for the sale.
The seller also had to pay maintenance and other fees until the property was handed over. Since the date of the agreement and the date of payment/final ownership were paid in two different financial years, a dispute arose between the tax authorities and the taxpayer in the year in which the profit from the sale of this property would become taxable. The Income Tax Department considered the date of registration of the property as the date on which the transfer took place and therefore taxed the capital gains during the 2011-2012 investment year. The dispute was brought before the Income Tax Court. Aiko does not realize the capital gain in the income year in which it entered into the contract in the next income year in which the settlement will take place. In other words, the taxpayer can transfer several rights in a transaction, some of which can be characterized as shares of real estate constituting capital assets and others that cannot. . . .