Capital gains arise only on completed transfer where ownership incidents are withheld until full payment and document release.

For capital gains purposes, a share-sale arrangement did not amount to a completed transfer on receipt of the first instalment where the agreement kept the share certificates in solicitors' custody, withheld any right to deal with the shares or underlying assets, and postponed effective divestment until full payment and release of the documents. The Court held that permission under section 269UC and partial payment alone did not transfer the shares or the flats, and no fresh conveyance of the immovable property had been executed. Accordingly, transfer and capital-gains chargeability did not arise in assessment year 1997-98, and the assessee succeeded.

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Issues: Whether, on the facts of the share-sale agreement, capital gains accrued in the assessment year 1997-98 on receipt of the first instalment and whether section 2(47)(vi) of the Income-tax Act, 1961 could be invoked to treat the shares and the underlying immovable property as transferred in that year.

Analysis: The agreement stipulated that transfer deeds were to be executed and the shares were to be taken into the buyer's name, but the shares were also to remain in the custody of solicitors until the final instalment was paid, and the buyer had no right to deal with the shares or the company's assets or properties until such payment. The buyer continued to occupy the flats as tenant and paid rent; no fresh conveyance of the immovable property was executed. The Court held that the permission obtained under section 269UC and the payment of the first instalment did not by themselves amount to a transfer of the shares or the flats. The transaction, read as a whole, showed that complete transfer and effective divestment were postponed until full payment and release of the share certificates.

Conclusion: The Tribunal was in error in holding that transfer and chargeability to capital gains arose in assessment year 1997-98. The capital gain was not taxable in that year and the issue was decided in favour of the assessee.

Ratio Decidendi: For capital gains purposes, a transfer is not complete merely on receipt of an initial instalment or on an agreement that contemplates later execution and delivery of transfer documents where the parties have expressly withheld the incidents of ownership until full performance.

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