Capital gains transfer occurs only on operative conveyance, not on agreement to sell with possession and earnest money

For capital gains purposes, an agreement to sell and delivery of possession did not by themselves effect a transfer where the contract postponed passing of title until payment and execution of the conveyance. The agreement treated earlier receipts as earnest money and did not separately transfer movables and immovables, while the sale deed contained the operative conveyance. Title to the immovable property passed only on execution of the sale deed, and the movables were not shown to have passed earlier. Capital gains were therefore not chargeable on the footing that the transfer occurred on 1 January 1947; the transfer took effect when the sale deed was executed.

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Issues: Whether the capital gains arising from the sale of the East Kajora Collieries were chargeable to tax in the assessment year 1948-49 on the footing that title to the assets had passed on 1 January 1947, or only on the execution of the sale deed on 25 February 1948.

Analysis: The agreement for sale did not divide the assets into separate movable and immovable components for the purpose of transfer, and the consideration was stated as a composite sum. The agreement showed that the property was not to pass until the consideration was paid, and the amounts received earlier were described as earnest money. Delivery of possession pursuant to an agreement to sell did not by itself transfer title to the immovable property. The sale deed, on the other hand, contained the operative conveyance, and the recital could not override its clear operative terms. On the facts, title to the immovable property passed only by the sale deed, while the movables were not shown to have passed earlier on 1 January 1947.

Conclusion: The capital gains were not chargeable in assessment year 1948-49 on the basis that the transfer had occurred on 1 January 1947; the transfer took effect upon execution of the sale deed, and the question was answered in favour of the assessee.

Final Conclusion: For the purposes of capital gains tax, an agreement to sell and delivery of possession do not, by themselves, effect a transfer where the contract shows that title is to pass only on payment and execution of the conveyance.

Ratio Decidendi: Transfer of title for capital gains purposes occurs only when the operative conveyance passes ownership; a mere agreement to sell with delivery of possession does not amount to transfer where the contract postpones passing of property until completion and payment.

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