Section 54 exemption can turn on the agreement to sell date where rights in the old property are effectively extinguished.

Section 54 relief may be available where the new residential flat is purchased within the prescribed period counted from the date of an agreement to sell, if that agreement extinguishes the transferor's rights and creates enforceable rights in favour of the transferee under section 2(47). On these facts, the agreement to sell was treated as the relevant date of transfer because the vendee obtained a right to specific performance and the assessee could no longer deal with the old property inconsistently with that agreement. The later registration of the conveyance deed was not treated as the operative transfer date, and exemption under section 54 was allowable.

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Issues: Whether exemption under section 54 of the Income-tax Act, 1961 was available where the new residential flat had been purchased before the date of registration of the sale deed of the old property, but after execution of the agreement to sell.

Analysis: The claim under section 54 depends on whether the new residential house was purchased within one year before or two years after the transfer of the old residential house. The expression "transfer" in section 2(47) of the Income-tax Act, 1961 includes extinguishment of rights in a capital asset. On the facts, the agreement to sell created enforceable rights in favour of the vendee and extinguished corresponding rights of the assessee in the old property, so the relevant date of transfer was the date of the agreement to sell and not the later date of registration of the conveyance deed. Once the agreement to sell was executed, the vendee obtained a right to seek specific performance, and the assessee could not thereafter deal with the property inconsistently with that agreement.

Conclusion: The transfer took place on the date of the agreement to sell, and the purchase of the new residential flat was within the statutory period. Exemption under section 54 was allowable.

Ratio Decidendi: For section 54 relief, the date of transfer of a capital asset may be taken as the date of an agreement to sell where that agreement extinguishes the transferor's rights and creates enforceable rights in favour of the transferee under section 2(47) of the Income-tax Act, 1961.

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