Registered sale deed and cancellation deed: later stamped transfer treated as fresh conveyance, sustaining short-term capital gains

A registered sale deed, once executed with transfer of possession and consideration, cannot be nullified by a later cancellation deed; the proper remedy for setting aside a void or voidable registered instrument lies under the Specific Relief Act. On the facts described, the later registered and duly stamped document was treated as a fresh transfer, so the holding period ran from that transfer date and the resulting gain was short-term capital gain. The conveyance was also read as transferring the entire property, including open land and appurtenant rights, not merely the superstructure, so capital gains could not be restricted to the building alone.

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Issues: (i) Whether a registered sale deed executed in favour of the assessee's daughter could be treated as cancelled by a subsequent cancellation deed so as to restore ownership to the assessee from the original purchase date and make the later sale a long-term capital gain transaction; (ii) Whether the sale deed executed in favour of the daughter transferred only the superstructure measuring 66.92 sq. m. or the entire property, including the open land, for the purpose of computing capital gains.

Issue (i): Whether a registered sale deed executed in favour of the assessee's daughter could be treated as cancelled by a subsequent cancellation deed so as to restore ownership to the assessee from the original purchase date and make the later sale a long-term capital gain transaction.

Analysis: A registered conveyance, once executed and acted upon with transfer of possession and consideration, does not stand annulled merely because the parties later execute a cancellation deed. The proper course for cancellation of a void or voidable registered instrument lies under section 31 of the Specific Relief Act, 1963. The subsequent document in the present facts was accompanied by payment of full stamp duty and was therefore treated as a fresh transfer rather than an effective obliteration of the earlier sale. The holding period for the later sale had therefore to be reckoned from the date of the fresh transfer and not from the original acquisition in 1986.

Conclusion: The cancellation deed did not revive the assessee's original ownership from 1986 and the later sale was correctly treated as giving rise to short-term capital gain.

Issue (ii): Whether the sale deed executed in favour of the daughter transferred only the superstructure measuring 66.92 sq. m. or the entire property, including the open land, for the purpose of computing capital gains.

Analysis: The conveyance and subsequent sale documentation showed transfer of the property as an integrated unit with all rights, title, interest, possession, and appurtenant rights. The deed did not support the assessee's later attempt to split the transaction into transferred and retained portions merely because the land description was said to be erroneous. The surrounding documents and the assessee's own correspondence indicated that the whole property, not merely the superstructure, was intended to pass under the 2006 sale deed.

Conclusion: The entire property was transferred to the daughter, and the assessee was not entitled to restrict short-term capital gain only to the superstructure.

Final Conclusion: The assessee's challenge to the treatment of the later transaction as short-term capital gain failed, and the addition made by the tax authorities was sustained.

Ratio Decidendi: A registered sale deed transferring possession and consideration cannot be nullified by a unilateral or subsequent cancellation deed; such a later document, if registered and stamped, is to be treated as a fresh transfer, and the capital gains consequences must be determined on that basis.

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