Capital gains classification and section 54 relief: unregistered gift deed fails to alter holding period, while multiple residential houses may still qualify.

An unregistered gift deed of immovable property does not confer legal title under section 17 of the Registration Act, 1908, and cannot alter the holding period for capital-gains classification; on the facts stated, the ground-floor transfer was therefore treated as short-term capital gain and the higher claimed cost of acquisition was rejected. For section 54, the expression "a residential house" was construed to include more than one residential property for the relevant period, so investment of capital gains in the basement property was not disqualified merely because more than one residential house was purchased. The section 54 exemption was accordingly available where the statutory conditions were otherwise satisfied.

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Issues: (i) whether the gain arising on transfer of the ground-floor property was to be taxed as short-term capital gain and whether the assessee's claimed cost of acquisition could be accepted; (ii) whether exemption under section 54 was available in respect of investment in the basement property notwithstanding purchase of more than one residential property.

Issue (i): whether the gain arising on transfer of the ground-floor property was to be taxed as short-term capital gain and whether the assessee's claimed cost of acquisition could be accepted.

Analysis: The registered power of attorney showed acquisition of the property in 2006 for a stated consideration of Rs. 3,24,000, and the subsequent sale took place in 2008. The unregistered gift deed relied upon by the assessee did not carry legal sanctity, since an instrument of gift of immovable property requires registration under section 17 of the Registration Act, 1908. On that basis, the holding period was less than the statutory period for a long-term capital asset, and the lower authorities were justified in not accepting the assessee's higher claimed cost of acquisition.

Conclusion: The treatment of the ground-floor property as short-term capital gain and the rejection of the higher claimed cost of acquisition were upheld against the assessee.

Issue (ii): whether exemption under section 54 was available in respect of investment in the basement property notwithstanding purchase of more than one residential property.

Analysis: Section 54 was construed in the light of decisions holding that the expression "a residential house" can include plural residential houses, and that the amendment substituting "one" operates prospectively. Applying that interpretation, investment of capital gains in more than one residential house did not, by itself, disqualify the assessee from exemption. The authorities were therefore not justified in restricting the benefit only to one property where the statutory conditions were otherwise satisfied.

Conclusion: Exemption under section 54 was held allowable to the assessee in respect of the basement property.

Final Conclusion: The appeal succeeded only on the section 54 issue, while the finding treating the ground-floor transaction as short-term capital gain was sustained.

Ratio Decidendi: For section 54 purposes, the expression "a residential house" may include plural residential houses for the relevant period, but an unregistered gift deed of immovable property does not confer legal title or alter the holding period for capital-gains classification.

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