Transfer by agreement to sell can trigger long-term capital gains and allow related improvement cost claims.
An agreement to sell accompanied by part payment, delivery of possession, and later performance was treated as a transfer under section 2(47), so the land was acquired on 11.04.2007 and the resulting gain was long-term capital gain. The valuation adopted under section 50C was found incomplete because the property was usable only as farm house land, faced construction restrictions, and was affected by acquisition-related circumstances; the matter was therefore remanded for fresh valuation on all relevant factors. Improvement expenditure incurred after the transfer date was held allowable in computing capital gains.
Issues: (i) Whether the date of acquisition of the land for capital gains purposes was 11.04.2007, being the date of agreement to sell and handing over of possession, or 13.04.2010, being the date of registered sale deed, so as to determine whether the gain was long-term or short-term; (ii) Whether the valuation adopted under section 50C required reconsideration having regard to the nature of land use, restrictions on development, and acquisition-related circumstances; (iii) Whether the assessee was entitled to claim the improvement expenditure incurred in relation to the land.
Issue (i): Whether the date of acquisition of the land for capital gains purposes was 11.04.2007, being the date of agreement to sell and handing over of possession, or 13.04.2010, being the date of registered sale deed, so as to determine whether the gain was long-term or short-term.
Analysis: The agreement to sell showed part payment of consideration, delivery of possession, and subsequent performance consistent with a transfer in substance. The later conversion of land use and execution of the sale deed were treated as steps in a continuous transaction already set in motion by the agreement. The Court applied the wider meaning of "transfer" under section 2(47) and the doctrine of part performance, holding that rights in the property had effectively passed on the date of the agreement.
Conclusion: The date of transfer was 11.04.2007, and the gain was to be treated as long-term capital gain. The adverse view of the authorities below was set aside.
Issue (ii): Whether the valuation adopted under section 50C required reconsideration having regard to the nature of land use, restrictions on development, and acquisition-related circumstances.
Analysis: The land was usable only as farm house land, with restrictions on construction area, and the property was also affected by acquisition proceedings. These factors were relevant to fair market valuation, yet the DVO had substantially adopted the stamp valuation without properly evaluating the special features of the property. The valuation exercise was therefore found incomplete and unsustainable.
Conclusion: The valuation issue was remanded to the AO/DVO for fresh determination after considering all relevant factors.
Issue (iii): Whether the assessee was entitled to claim the improvement expenditure incurred in relation to the land.
Analysis: Since the land was held to have been acquired in 2007, expenditure incurred for improving the land after that date formed part of the allowable cost in computing capital gains. The disallowance was not justified once the transfer/acquisition date was treated as the date of the agreement to sell.
Conclusion: The claim for improvement expenditure was allowed in favour of the assessee.
Final Conclusion: The assessee succeeded on the core characterisation of the transfer date and on the claim for improvement expenditure, while the valuation matter was sent back for fresh adjudication.
Ratio Decidendi: Where an agreement to sell is accompanied by part payment, delivery of possession, and subsequent performance of the contractual obligations, the transaction may amount to a transfer under section 2(47) from the date of the agreement for capital gains purposes; valuation under section 50C must also reflect all material property-specific factors.
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