Part performance and capital gains: aborted agreement to sell without proved possession did not create a taxable transfer.

An agreement to sell does not amount to a transfer of a capital asset under Section 2(47) of the Income-tax Act, 1961 unless part performance under Section 53A of the Transfer of Property Act, 1882 is established through a clear stipulation and proved handing over of possession. Here, the contract contained no express term for pre-conveyance possession, and peripheral acts such as applications for utility connections were insufficient to prove possession in part performance. The later rescission of the agreement, partial refund of advance, and absence of any registered sale deed showed that the transaction never crystallised into a transfer. The short-term capital gains addition was therefore not sustainable.

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Issues: Whether the agreement to sell and surrounding conduct resulted in a transfer of a capital asset under Section 2(47) of the Income-tax Act, 1961 by reason of part performance under Section 53A of the Transfer of Property Act, 1882, so as to attract short-term capital gains.

Analysis: The agreement to sell contained no clear stipulation that possession of the property would be handed over to the transferee before execution and registration of the conveyance deed. The alleged indicia of possession, such as applications for electricity and telephone connections, were treated as peripheral and insufficient to establish that the transferee had obtained possession in part performance of the contract. The later mutual rescission of the agreement, repayment of part of the advance, and the absence of any registered sale deed showed that the proposed transaction never culminated in a transfer. The assessment could not be sustained by reading the events piecemeal up to the close of the previous year while ignoring the full chain of facts available from the search materials.

Conclusion: No transfer within the meaning of Section 2(47) of the Income-tax Act, 1961 was established, and Section 53A of the Transfer of Property Act, 1882 did not apply. The addition as short-term capital gains was not sustainable.

Ratio Decidendi: In the absence of a written stipulation and proved handing over of possession in part performance, an aborted agreement to sell does not amount to transfer of a capital asset for capital gains purposes.

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