Completed transfer requires effective possession and acted-upon consideration; cancelled sale agreement did not trigger short term capital gain.

An agreement to sell followed by cancellation did not amount to a completed transfer where effective possession was not given, consideration cheques were returned, and the parties expressly nullified the earlier arrangement. Section 53A of the Transfer of Property Act, 1882 was not accepted on these facts to treat the earlier arrangement as a transfer. The later agreement dated 03-12-2008 was treated as the real transfer, so the gain could not be assessed as short term capital gain and was directed to be assessed as long term capital gain.

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Issues: Whether the agreement to sell dated 19-07-2004, followed by cancellation on 03-12-2008, amounted to a completed transfer so as to tax the gain as short term capital gain, or whether the ultimate transaction on 03-12-2008 gave rise to long term capital gain.

Analysis: The property had not been finally transferred under the earlier agreement because the purchasers were not put in effective possession in the manner asserted by the Revenue, the cheques received towards consideration were returned on cancellation, and the parties expressly agreed to nullify the earlier arrangement. On the facts, the earlier agreement was never acted upon to completion, and the later agreement of 03-12-2008 represented the real transfer for consideration. The attempt to invoke section 53A of the Transfer of Property Act, 1882 to treat the earlier arrangement as a transfer was not accepted on these facts.

Conclusion: The addition as short term capital gain was unsustainable. The gain was directed to be assessed as long term capital gain, in favour of the assessee.

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