Capital gains treatment for confirming-party consideration upheld where registered deed showed relinquishment of property rights and possession.

Consideration received for joining as a confirming party and giving no-objection consent in a registered conveyance deed was held to arise from transfer or extinguishment of rights in a capital asset, because the deed recorded actual and physical possession with the assessee and the other legal heirs and showed that the higher share of sale proceeds was paid in exchange for handing over possession and relinquishing proprietary rights. The registered conveyance deed was preferred over unregistered documents relied on by the tax authority, since those documents were executed between other parties and did not override the deed binding on the assessee. The receipt was therefore taxable as long-term capital gains and not as income from other sources.

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Issues: Whether the amount received by the assessee for joining as a confirming party and issuing no-objection consent in the conveyance deed was taxable as long-term capital gains or as income from other sources.

Analysis: The consideration was traced to the registered conveyance deed, which recorded that the assessee and the other legal heirs had actual and physical possession of the property and that they received a higher share of the sale consideration in lieu of handing over such possession and relinquishing their rights or interest in the property. The Tribunal held that the registered conveyance deed prevailed over unregistered documents relied upon by the Assessing Officer, especially as those documents were executed between other parties and did not override the deed to which the assessee was a party. On that basis, the Tribunal accepted that the assessee had a transferable interest in the property and that receipt of consideration involved transfer or extinguishment of rights in a capital asset.

Conclusion: The receipt of Rs. 1,95,00,000 was taxable as long-term capital gains and not as income from other sources.

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