Capital gains and agricultural reliefs turn on proof of transfer, land character, and evidence-based income estimation.

Capital gains were not attracted on an agreement to sell-cum-irrevocable power of attorney where consideration was not received, possession was not handed over, and the agreement was later cancelled by registered deed, because no completed transfer was proved. Deduction under section 54F required fresh factual enquiry since the nature of the new construction as a residential house was not conclusively established and its use as hostel accommodation was not enough by itself. Deduction under section 54B was sustained because the purchased lands were shown by documentary and revenue records to be agricultural lands, and no notified-limit disqualification was proved. Additions treating part of disclosed agricultural income as income from other sources were rejected as based on estimate rather than evidence.

---

---

Issues: (i) Whether capital gains could be assessed on the basis of an agreement of sale-cum-irrevocable power of attorney where consideration was not received, possession was not handed over, and the agreement was later cancelled. (ii) Whether deduction under section 54F was allowable where the new construction was claimed to be a residential house but was used as hostel accommodation. (iii) Whether deduction under section 54B was allowable in respect of investment in agricultural lands. (iv) Whether the agricultural income disclosed by the assessees could be treated in part as income from other sources without a proper basis.

Issue (i): Whether capital gains could be assessed on the basis of an agreement of sale-cum-irrevocable power of attorney where consideration was not received, possession was not handed over, and the agreement was later cancelled.

Analysis: The transfer provisions require a completed transfer of a capital asset. The agreement relied on by the Revenue did not establish receipt of sale consideration or delivery of possession. The record also showed that the agreement was subsequently cancelled by a registered cancellation deed, and no other material conclusively proved that the property stood transferred during the relevant previous year. Mere execution of an agreement to sell-cum-GPA, without the essential ingredients of transfer, was held insufficient to attract capital gains.

Conclusion: No capital gains arose on the Maqta Mehboobpet transaction on the basis of the agreement to sell-cum-GPA.

Issue (ii): Whether deduction under section 54F was allowable where the new construction was claimed to be a residential house but was used as hostel accommodation.

Analysis: The nature of the property could not be conclusively decided on the existing material. Neither the construction plan nor the municipal approval or physical verification was examined to determine whether the building was truly a residential house. The finding that use as a hostel necessarily made the property commercial was not accepted as sufficient, but the issue required fresh factual enquiry.

Conclusion: The matter was remitted to the Assessing Officer for fresh adjudication on the section 54F claim.

Issue (iii): Whether deduction under section 54B was allowable in respect of investment in agricultural lands.

Analysis: The lands purchased were supported by documentary evidence showing them as agricultural lands, and revenue certificates also described them as such. Section 54B requires investment of the capital gain in other agricultural land for agricultural use; it does not introduce a disqualification based merely on proximity to an urban area. The Revenue did not establish that the lands fell within the prescribed notified limits so as to deny the benefit.

Conclusion: Deduction under section 54B was rightly allowed.

Issue (iv): Whether the agricultural income disclosed by the assessees could be treated in part as income from other sources without a proper basis.

Analysis: The assessees owned substantial agricultural land, had disclosed agricultural income in earlier years which was accepted by the Department, and the income declared in the relevant years was broadly consistent with past returns and land holdings. No cogent basis was shown for restricting agricultural income to a notional rate per acre, and the additions were founded on estimate rather than evidence.

Conclusion: The additions made by treating part of the agricultural income as income from other sources were not sustainable.

Final Conclusion: The Revenue succeeded only in part on the remitted issue concerning section 54F in one appeal, while the disallowance of capital gains on the cancelled agreement, the allowance of section 54B relief, and the acceptance of the assessees' agricultural income were upheld in substance.

---