Income Tax Appellate Tribunal

Deputy Commissioner Of Income Tax vs. Shri Pademakar Gopal Bhide, Pune

MANU/IP/0353/2023

11.07.2023

Direct Taxation

Liability to pay advance tax arises only on the accrual of income in the hands of the assessee and not prior

The relevant facts in this case are that the assessment proceedings in assessee’s case for A.Y. 2014-15 were completed on. Thereafter, the AO had issued notice under Section 154 of the Income Tax Act, 1961(IT Act) proposing to levy interest under Section 234C of the Act on the ground that,assessee had failed to pay advance tax installment on the capital gains arising on the sale of property carried out as per agreement dated 19th December, 2013. The AO held that though the agreement was dated 19th December, 2013, the capital gain had accrued on that date and, hence, the liability to pay advance tax has been arisen. The AO had drawn an inference that since the pay order purchased by the buyer towards sale consideration was dated 14th December, 2013, the assessee was fully aware of the likely capital gains thereon and hence, the liability to pay tax arisen on 14th December, 2013 i.e. the date when the pay order was issued towards sale consideration. Since, no advance tax was paid on or before 15th December, 2013, the AO held that, interest under Section 234C of IT Act ought to be charged thereon.

When the matter travelled before the CIT(A), he observed that though the terms and conditions of the sale transaction might have been finalized by the time pay order was purchased on 14th December, 2013 by the buyer, legally no transfer had taken place till 19th December, 2013. The clearing of the pay order on 16th December, 2013 was only an advance payment and in the absence of a valid registration, it does not partake the character of sale consideration. CIT(A) held that, the liability to pay advance tax on the sale transaction had arisen only on 19th December, 2013 and, hence, there was no liability to pay any advance tax installment on or before 15th December, 2013 on resultant capital gain.

As per the provisions of Transfer of Property Act, 1882, the ownership of an immovable property gets transferred from one party to another only through valid registration before the Registrar of Assurances. Till the time, the ownership is transferred whatever advance, party receives is a liability in his hand and it does not take the character of income accrued. Liability to pay advance tax arises only on the accrual of income in the hands of the assessee and not prior to that.

When the pay order was purchased and it was cleared on 16th December, 2013 such amount received was only a liability in the hands of the assessee and was not an income accrued. Therefore, there does not arise any liability to pay advance tax on or before 15th December, 2013. Since, the sale registration was completed on 19th December, 2013, the liability to pay advance tax on the sale transaction can only be said to have arisen on 19th December, 2013. Therefore, there is no infirmity with the findings of the CIT(A), which is upheld. Appeal of the Revenue is dismissed.

Tags : Interest Payment Liability

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