Part performance and accrual principles govern when capital gains and interest income become taxable

Capital gains on transfer of immovable property arise only when the underlying arrangement is legally enforceable for part performance under section 53A of the Transfer of Property Act and section 2(47)(v) of the Income-tax Act. Where the conveyance deed is executed later and the earlier document lacks registration, transfer cannot be treated as having occurred in the relevant year, so the capital gain is not taxable in that assessment year. Interest income is assessable on mercantile principles only when it has actually accrued; if it has already been offered in a later year, the matter requires verification to avoid double taxation.

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Issues: (i) Whether the capital gain on sale of the assessee's immovable property was taxable in the assessment year in question on the footing that transfer had taken place under section 53A of the Transfer of Property Act, 1882 and section 2(47)(v) of the Income-tax Act, 1961. (ii) Whether the interest income was assessable on mercantile basis in the year under consideration when the assessee asserted that it had been offered to tax in the subsequent year.

Issue (i): Whether the capital gain on sale of the assessee's immovable property was taxable in the assessment year in question on the footing that transfer had taken place under section 53A of the Transfer of Property Act, 1882 and section 2(47)(v) of the Income-tax Act, 1961.

Analysis: The conveyance deed was executed later, and the transaction was found to have been completed in the subsequent year. The invocation of section 53A could not be sustained because the document had no legal efficacy for that purpose in the absence of registration. Relying on the principle that section 2(47)(v) is attracted only where there is an enforceable contract capable of operating under section 53A, the transfer could not be treated as having occurred in the relevant year. The resulting capital gain, therefore, could not be brought to tax in that assessment year under sections 45 and 48.

Conclusion: The addition of short-term capital gain for the year under consideration was unsustainable and was deleted.

Issue (ii): Whether the interest income was assessable on mercantile basis in the year under consideration when the assessee asserted that it had been offered to tax in the subsequent year.

Analysis: The assessee claimed that taxing the same interest income in the year under consideration would amount to double taxation, and sought verification of the subsequent year's offer of income. The issue was restored to the assessing authority for examination of the evidence and for giving appropriate relief if the income had already been taxed later.

Conclusion: The issue was remitted to the assessing authority for verification and fresh decision.

Final Conclusion: The assessee succeeded on the capital gains issue, while the interest income issue was sent back for verification, and the appeal was disposed of with consequential statistical relief.

Ratio Decidendi: For purposes of section 2(47)(v) of the Income-tax Act, 1961, a transfer based on part performance arises only when the underlying contract is legally enforceable under section 53A of the Transfer of Property Act, 1882, and without such enforceability no capital gain can be brought to tax in that year; income cannot be taxed as real income unless it has actually accrued.

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