Capital gains treatment for surrender of sale-agreement rights confirmed, while computation and section 54F relief were remitted.

A right acquired under an agreement to sell to obtain conveyance of immovable property is a capital asset under section 2(14) of the Income-tax Act, 1961, and its surrender or extinguishment on transfer of the property to a third party constitutes a transfer under section 2(47), giving rise to capital gains. The absence of a prior suit for specific performance does not change the character of that right. The registration objection was rejected because section 17(1A) of the Registration Act, 1908 was relevant only to part performance under section 53A of the Transfer of Property Act, 1882, and no such possession or part performance existed. Computation under section 48 and relief under section 54F were left for fresh determination.

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Issues: Whether the amount received by the assessee on execution of the sale deed in respect of rights under an agreement to sell was chargeable as capital gains or as income from other sources, and whether the matter of computation of capital gains and deduction under section 54F required fresh examination.

Analysis: The right acquired under an agreement to obtain conveyance of immovable property is a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961. When such right is given up or extinguished on transfer of the property to a third party, the transaction results in transfer of a capital asset within section 2(47) of the Income-tax Act, 1961 and the consideration received is assessable under the head capital gains. The absence of a prior suit for specific performance does not alter the character of the right surrendered. The objection based on compulsory registration was rejected because section 17(1A) of the Registration Act, 1908 applies to contracts to transfer for consideration only for the purpose of section 53A of the Transfer of Property Act, 1882, and no part performance or delivery of possession was involved here.

Conclusion: The receipt was held taxable as capital gains and not as income from other sources. The assessee's claim under section 54F and the computation under section 48 of the Income-tax Act, 1961 were not examined and were sent back for fresh determination.

Final Conclusion: The core character of the receipt was held to be capital gains, but the quantum of taxable income and consequential relief were left open for reconsideration by the Assessing Officer.

Ratio Decidendi: A right to obtain conveyance of immovable property under an agreement to sell is a capital asset, and its surrender or extinguishment on transfer gives rise to capital gains under the Income-tax Act, 1961.

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