Section 54 exemption remains available on an unregistered agreement to sell where possession and consideration show part-performance transfer.

Deduction under section 54(1) was available where a residential house was acquired under an unregistered agreement to sell, provided consideration was paid and possession passed. The transaction was treated as complete in part performance for section 2(47)(v) purposes, and the transferor's own treatment of the deal as a taxable capital gain supported its genuineness. On that basis, the absence of a registered sale deed did not defeat exemption, and the disallowance was held unsustainable.

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Issues: Whether deduction under section 54(1) of the Income-tax Act, 1961 was allowable where the new residential house was acquired under an unregistered agreement to sell from the assessee's son and possession plus consideration were shown to have passed.

Analysis: The assessee had entered into an agreement to sell for purchase of a residential house, paid the consideration, and took possession. The transferor also offered the transaction to tax on capital gains, which supported the genuineness of the transaction. In these circumstances, the transfer was treated as complete for the purposes of section 2(47)(v) of the Income-tax Act, 1961, even though the sale deed was not registered. The unregistered nature of the document did not defeat the claim for exemption under section 54(1) when the evidence on record showed an transfer in part performance.

Conclusion: Deduction under section 54(1) was allowable, and the disallowance was not sustainable.

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