Holding period for land sale can run from the agreement date where seller's default delays completion and possession.

Where a property sale deed was registered later because the seller failed to complete performance and possession was delayed beyond the assessee's control, the holding period was reckoned from the earlier registered agreement to purchase. Applying impossibility of performance and lex non cogit ad impossibilia, the transaction was linked back to the agreement date, so the gain was treated as long-term capital gain. The claim for cost of improvement and related expenditure, however, was disallowed for lack of supporting evidence and was remitted for fresh verification and decision by the Assessing Officer.

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Issues: (i) Whether the gain on sale of land was to be assessed as long-term capital gain or short-term capital gain by determining the holding period from the date of the agreement to sell; (ii) Whether the disallowance of claimed cost of improvement and related expenditure required fresh adjudication.

Issue (i): Whether the gain on sale of land was to be assessed as long-term capital gain or short-term capital gain by determining the holding period from the date of the agreement to sell.

Analysis: A registered agreement to purchase the property had been executed earlier, part payment had been made, and the assessee had not obtained possession because the seller did not complete performance. The later registration of the sale deed occurred pursuant to a court decree. In these circumstances, the delay in registration and possession was found to have arisen for reasons beyond the assessee's control. The doctrine of impossibility of performance and the maxim lex non cogit ad impossibilia were applied to hold that the assessee could not be penalized for the seller's default, and the transaction was to relate back to the original agreement date for computing the period of holding.

Conclusion: The gain was to be treated as long-term capital gain and the assessee succeeded on this issue.

Issue (ii): Whether the disallowance of claimed cost of improvement and related expenditure required fresh adjudication.

Analysis: The claim had been disallowed by the lower authorities for want of supporting evidence establishing nexus with the property. The assessee sought an to produce supporting material, and the Revenue did not oppose fresh consideration. In these circumstances, the matter was considered fit to be sent back for verification and decision afresh in accordance with law.

Conclusion: The issue was restored to the Assessing Officer for fresh adjudication and the assessee obtained only statistical relief.

Final Conclusion: The assessee succeeded on the characterization of capital gains, while the expenditure-related claim was remitted for reconsideration, leaving the appeal partly allowed overall.

Ratio Decidendi: Where completion of a property purchase is delayed by the seller's default and the assessee has done all that was required under the agreement, the period of holding can be reckoned from the agreement date because impossibility of performance prevents the assessee from being treated as in default.

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