In capital gain taxation, the seemingly simple question— “When does the transfer actually take place?”—has often been a subject of significant disputes. Various judicial pronouncements, including the recent ITAT Mumbai ruling in Shree Jain v. Assistant Commissioner of Income Tax (2026), have highlighted how an incorrect understanding of this aspect can lead to non-disclosure of capital gains and consequent litigation.
To understand the issue in context, it is relevant to briefly examine the facts of the case. While the case also involves reopening the assessment, the present discussion is confined to determining the transfer date and its impact on capital gains.
Facts of the Case:
The assessee, Shree Jain, purchased land during FY 2012–13 for ₹4.37 crore. The said land was sold vide a registered sale deed dated 07.08.2015 for ₹8.96 crore. As per the sale deed, the entire consideration was stated to have been paid by the purchaser through a cheque drawn on Axis Bank, and TDS of ₹8.96 lakh was deducted under section 194-IA.
However, in the return of income filed for AY 2016–17, the assessee did not declare any capital gains. It was contended that although the sale deed was executed, the purchaser failed to honour the cheque; the transaction therefore remained unfructified and was claimed to be void due to non-payment of consideration.
The return was processed under section 143(1), and no scrutiny assessment was carried out. Subsequently, based on information regarding the registered sale deed and TDS reflected in Form 26AS, the case was reopened under section 147, and notice under section 148 was issued on the ground of escapement of income.
During the reassessment proceedings, the assessee submitted that the buyer had subsequently transferred 84 flats, and capital gains arising therefrom were offered in later years.
The Assessing Officer rejected the explanation on the ground that the registered sale deed clearly recorded the transfer of ownership and acknowledgement of consideration. Further, no cancellation deed was produced. Accordingly, given the holding period of less than 36 months, Short-Term Capital Gain (STCG) of ₹4.56 crore was computed.
The Commissioner (Appeals) upheld the Assessing Officer’s action. Aggrieved, the assessee preferred an appeal before the ITAT Mumbai.
Decision of ITAT Mumbai:
The ITAT, Mumbai, upheld the action of the Assessing Officer and the Commissioner (Appeals), holding that the income was rightly taxed as Short-Term Capital Gain arising from the transfer of land. The Tribunal dismissed the assessee’s appeal.
Lessons Every Property Seller Must Know:
While the legal provisions may appear technical, the following practical lessons clearly emerge from these judicial rulings.
(a) Tax Trigger on execution/registration of sale deed, even if consideration is not received: Capital gains are taxable in the year in which the transfer of the capital asset takes place, irrespective of the timing of actual receipt of consideration. Once a sale deed is executed and registered, the transaction may be treated as complete by the Income Tax Department, even if the buyer has not actually made the payment.
(b) Non-receipt of money is not a valid escape: Tax liability arises based on the right to receive consideration and not necessarily on its actual receipt. The accrual of such a right is sufficient to trigger tax liability, even if payment is deferred or not received.
(c) Execution of the sale deed has immediate tax implications: Execution of a registered sale deed can trigger capital gains tax liability, even if the transaction subsequently encounters complications.
(d) Future adjustments do not alter past tax liability: Subsequent arrangements, such as receipt of consideration in a different form or at a later stage, do not impact the taxability in the year in which the transfer originally took place.
(e) Each year is a separate unit of taxation: Income offered or adjustments made in a later year cannot substitute or rectify non-reporting in the relevant assessment year, as each year is a separate unit of taxation
(f) Wide Scope of transfer: The definition of “transfer” under section 2(47) is wide and includes situations where rights in the property are effectively conveyed.
(g) Registered deed is mandatory: The Hon’ble Supreme Court in Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana held that immovable property can be legally transferred only through a registered deed of conveyance.
(h) Position reaffirmed by Supreme Court: This position has been reiterated in Ramesh Chand v. Suresh Chand (2025), reinforcing that ownership of immovable property passes only through a duly registered instrument.
Conclusion:
This ruling reinforces that in capital gains taxation, the substance of transfer—particularly the execution of a registered sale deed—prevails over subsequent disputes regarding payment, making the correct determination of the “date of transfer” critically important for ensuring proper tax compliance.
Disclaimer: The article is for educational purposes.
The author can be approached at caanitabhadra@gmail.com
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Take money in advance before execution of sale deed.