Agreement to sell can fix the transfer date for section 56 valuation where substantial property rights had already vested.

Where an immovable property is acquired under a genuine agreement to sell, the transfer may be treated as completed on the agreement date if substantial rights have already vested and the later sale deed only perfects those rights. On these facts, the Tribunal treated the transaction as falling in the preceding year because the agreement was supported by part payment and the earlier allotment arrangement had already created material rights in the property. As a result, section 56(2)(vii)(b)(ii) of the Income-tax Act, 1961 was not attracted and the stamp duty value addition could not be sustained.

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Issues: Whether the purchase of immovable property was completed in the preceding year on the basis of the agreement to sell, so as to keep the transaction outside section 56(2)(vii)(b)(ii) of the Income-tax Act, 1961, and whether the addition based on stamp duty value was justified.

Analysis: The property was covered by an agreement to sell, and the agreement date was supported by the recital of part payment in the registered sale deed. The seller had already acquired substantial and material rights in the property through the earlier allotment arrangement and payment of the full consideration to the developer, so the later formal registration did not create a new right but only ratified rights already vested. On these facts, the transaction was treated as having been completed on the agreement date. The Tribunal also noted that, where rights in property are transferred through an agreement to sell and later perfected by registration, the transfer takes effect from the agreement date for the purpose of the dispute before it.

Conclusion: The transaction fell in the preceding year and section 56(2)(vii)(b)(ii) of the Income-tax Act, 1961 could not be invoked; the addition was deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: Where an assessee acquires substantial rights in immovable property under a genuine agreement to sell, later registration of the sale deed does not postpone the date of transfer for the purpose of section 56(2)(vii)(b)(ii) of the Income-tax Act, 1961 if the transaction was already completed in the earlier year.

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