Advance receipt under land sale agreement is not taxable capital gains unless transfer or possession passes in the relevant year.

An advance received under an agreement to sell agricultural land did not constitute taxable sale consideration in the relevant year because no transfer of the capital asset had occurred then. The agreement was executed earlier, but possession was handed over only in 2020 and the transaction was completed in that year. In the absence of transfer of possession or completion of the sale in the year under consideration, section 2(47) of the Income-tax Act, read with the principles of part performance under section 53A of the Transfer of Property Act, was not attracted. The receipt was therefore treated as advance payment, not capital gains, and the addition was deleted.

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Issues: Whether the amount received against the agreement to sell agricultural land was merely advance payment in the year under consideration or constituted sale consideration giving rise to taxable transfer and capital gains under section 2(47) of the Income-tax Act, 1961.

Analysis: The decisive question was whether there was any transfer of the capital asset in the relevant year. The agreement to sell was executed in 2013, while the documents showed that possession was handed over only on 15.02.2020 and the transaction was completed in that year. In the absence of transfer of possession or completion of the transfer in the year under appeal, the receipt could not be treated as sale consideration for capital gains purposes merely because advance money had been received. The concept of transfer under section 2(47) of the Income-tax Act, 1961, read with the principles governing part performance under section 53A of the Transfer of Property Act, 1882, was therefore not attracted in the relevant year.

Conclusion: The receipt was only advance payment in the relevant year and not taxable sale consideration for that year; the addition was liable to be deleted and the assessee succeeded on this ground.

Ratio Decidendi: For capital gains purposes, an advance received under an agreement to sell does not amount to taxable transfer in the relevant year unless the transaction results in a transfer of rights or possession so as to attract section 2(47) of the Income-tax Act, 1961.

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