Capital gains on part possession of immovable property may arise when written agreement and part performance trigger transfer.

For capital gains purposes, a transfer under section 2(47)(v) of the Income-tax Act may arise when possession of a defined portion of immovable property is handed over in part performance of a written agreement satisfying section 53A of the Transfer of Property Act. The text states that where only part of the property is transferred in this manner, the statutory transfer is confined to that portion, capital gains accrue in the year possession is delivered, and the sale consideration may be allocated on a proportionate basis to the part actually transferred.

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Issues: Whether, for capital gains purposes, transfer under section 2(47)(v) of the Income-tax Act, 1961 arises on parting with possession of only a portion of immovable property in part performance of a written agreement, and whether the consideration is to be computed proportionately for the portion actually transferred.

Analysis: The agreement was in writing and disclosed a completed arrangement in terms of section 53A of the Transfer of Property Act, 1882. Possession of only a part of the property was handed over in pursuance of that agreement, and the statutory definition of transfer under section 2(47)(v) extends to such delivery of possession. Once that statutory transfer occurs, capital gains are chargeable in the year in which the possession is handed over. The contract could be treated in parts where the facts and agreement show that possession of only a defined portion was transferred, and the sale consideration was capable of allocation on a proportionate basis.

Conclusion: The transfer for capital gains purposes was confined to the portion of property whose possession was handed over, and the consideration was rightly taken on a proportionate basis. The issue was decided against the Revenue and in favour of the assessee.

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