Transfer by possession and part-payment allowed depreciation on acquired assets and blocked short-term capital gain treatment.

Possession receipts and substantial part-payment under unregistered property agreements were treated as sufficient indicators that transfer had concluded in the relevant year for income-tax purposes, even though formal sale deeds were registered later. Applying section 2(47) of the Income-tax Act read with section 53A of the Transfer of Property Act and section 17 of the Registration Act, the properties were held to form part of the block of assets, and depreciation under section 32 was allowable because the assessee had dominion and business use. On that basis, reduction of the block and assessment of the resulting gain as short-term capital gain under section 50 were not justified, and the addition was deleted.

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Issues: Whether the assessee had acquired the two properties during the relevant year so as to justify inclusion of their cost in the block of assets and allowance of depreciation, and whether the resulting gain on sale of the remaining assets could be assessed as short-term capital gain.

Analysis: The properties were claimed to have been acquired through unregistered agreements, but the assessee produced possession receipts and evidence of substantial payment during the year. The transfer provisions under Section 2(47) of the Income-tax Act, 1961, read with Section 53A of the Transfer of Property Act, 1882 and Section 17 of the Registration Act, 1908, were considered in the light of the later clarificatory Explanation 2 to Section 2(47), which broadened the scope of transfer. The possession of both properties and substantial part-payment during the year were treated as decisive indicators that the transactions had concluded in the relevant year, even though formal sale deeds were registered later. On that basis, the assets were rightly treated as part of the block of assets and the assessee, having dominion and business use, was entitled to depreciation under Section 32 of the Income-tax Act, 1961. Consequentially, the reduction of the block and the assessment of short-term capital gain under Section 50 were not justified.

Conclusion: The inclusion of both properties in the block of assets was upheld, the depreciation claim was allowable, and the addition as short-term capital gain was deleted in favour of the assessee.

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