Agreement to sale is also ‘transfer’ as per Sec 2(47) of the Income Tax Act: SC


Agreement to sale is also ‘transfer’ as per Sec 2(47) of the Income Tax Act: SC



1.A residential property was a self acquired property of Shri Amrit Lal, who had executed a will whereby life interest in the aforestated house had been given to his wife and upon death of his wife, the house was to be given in favour of two sons of his pre-deceased son – late Shri Moti Lal and his widow.

2.One of the above stated grand children and the daughter-in-law of Shri Amrit Lal are the appellants in these appeals. Upon death of Shri Amrit Lal and his wife, the ownership in respect of the house in question came to be vested in the present appellants and another grandchild of late Shri Amrit Lal.

3.The appellants had decided to sell the house and with that intention they had entered into an agreement to sell the house with Shri Sandeep Talwar on 27th December, 2002 for a consideration of Rs. 1.32 crores.

4.Out of the said amount, a sum of Rs.15 lakhs had been received by the appellants by way of earnest money. As the appellants had decided to sell the house in question, they had also decided to purchase another residential house in Chandigarh so that the sale proceeds, including capital gain, can be used for purchase of the aforestated House. The said house was purchased on 30th April, 2003 i.e. well within one year from the date on which the agreement to sell had been entered into by the appellants.

5.The validity of the Will had been questioned by Shri Ranjeet Lal, who was another son of the deceased testator Shri Amrit Lal, by filing a civil suit, wherein the trial court, by an interim order had restrained the appellants from dealing with the house property.

6.During the pendency of the suit, Shri Ranjeet Lal expired on 2nd December, 2000 leaving behind him no legal heirs. The suit filed by him had been dismissed in May, 2004 as there was no representation on his behalf in the suit.

7.Due to the interim relief granted in the above stated suit, the appellants could not execute the sale deed till the suit came to be dismissed and the validity of the Will was upheld. Thus, the appellants executed the sale deed in 2004 and the same was registered on 24th September, 2004.

8.The Assessing Officer was of the view that the appellants were not entitled to any benefit under Section 54 of the Act for the reason that the transfer of the original asset, i.e. the residential house, had been effected on 24th September, 2004 whereas the appellants had purchased another residential house on 30th April.

Hon SC held as below:

1.The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December, 2002 can be considered as a date on which the property i.e. the residential house had been transferred.

2.A a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated.

3.In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of their residential property being House No. 267, Sector 9-C, situated in Chandigarh and used for purchase of a new asset/residential house.