Enforceable rights under an agreement to sell can be capital assets, making sale proceeds taxable as long-term capital gains.

An enforceable right arising under a banakhat or agreement to sell, when supported by later registration, settlement of dispute, obtaining of non-agricultural permission, and execution of the registered sale deed, can constitute a capital asset under section 2(14) of the Income-tax Act, 1961. On that basis, consideration received on transfer is assessable as long-term capital gain rather than income from other sources. Once the receipt is treated as capital gains, consequential relief under section 54B must be examined on the footing of capital gain tax treatment and allowed to the extent otherwise permissible in law.

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Issues: (i) Whether the rights arising from the banakhat/agreement to sell in favour of the confirming parties constituted a capital asset, so that the consideration received on the registered sale deed was taxable as long-term capital gain and not as income from other sources. (ii) Whether the assessee was entitled to consequential deduction under section 54B of the Income-tax Act, 1961.

Issue (i): Whether the rights arising from the banakhat/agreement to sell in favour of the confirming parties constituted a capital asset, so that the consideration received on the registered sale deed was taxable as long-term capital gain and not as income from other sources.

Analysis: The agreement to sell contained a clause for automatic extension of time until title clearance and non-agricultural permission were obtained. The later registration of the agreement, the settlement of the civil dispute, the obtaining of N.A. permission, and the execution of the registered sale deed showing the assessees as confirming parties established that the assessee had a subsisting and enforceable right in the property. Such right fell within the meaning of capital asset under section 2(14) of the Income-tax Act, 1961. The objections based on non-registration and expiry of the original period were therefore not accepted on the facts.

Conclusion: The receipt was rightly assessed as long-term capital gain and not as income from other sources.

Issue (ii): Whether the assessee was entitled to consequential deduction under section 54B of the Income-tax Act, 1961.

Analysis: Once the receipt was held to arise from transfer of a capital asset, the claim for deduction had to be examined on the footing of capital gains. The appellate authority had directed allowance of the deduction if otherwise admissible under the Act, and no separate infirmity in that approach was found.

Conclusion: The consequential claim for deduction under section 54B stood allowed to the extent admissible in law.

Final Conclusion: The Revenue's challenge failed because the assessee's rights under the agreement to sell were treated as a capital asset, and the capital-gains treatment adopted by the appellate authority was sustained.

Ratio Decidendi: An enforceable right arising under an agreement to sell, when recognised in a registered sale transaction and supported by the surrounding factual and contractual matrix, is a capital asset whose transfer is assessable as capital gains.

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