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Issues: (i) whether handing over possession of part of an immovable property under a memorandum of understanding and licence arrangement amounted to transfer by part performance so as to attract capital gains in the earlier assessment year; (ii) whether debenture redemption premium was allowable in full in the year of claim or had to be spread over the period of the debentures.
Issue (i): whether handing over possession of part of an immovable property under a memorandum of understanding and licence arrangement amounted to transfer by part performance so as to attract capital gains in the earlier assessment year.
Analysis: The agreement to sell was followed by a memorandum of understanding under which the advance became non-refundable and the purchaser was put in possession of part of the property. The arrangement was held to be a supplement to the original agreement, not a separate licence transaction. The conditions in the memorandum were treated as protective stipulations pending completion of conveyance. Since the transferee had taken possession of part of the property in furtherance of the contract and had performed its part, the transaction fell within the scope of part performance under section 53A of the Transfer of Property Act, 1882 and therefore within the extended definition of transfer in section 2(47)(v) of the Income-tax Act, 1961. As the transaction was a single and indivisible transfer of one property, the deeming provision applied to the entire property and not merely to the portion physically occupied.
Conclusion: Capital gains were exigible in the earlier assessment year on the entire property and not in the later year.
Issue (ii): whether debenture redemption premium was allowable in full in the year of claim or had to be spread over the period of the debentures.
Analysis: The liability was treated as relatable to the entire period of continuation of the debentures. The governing principle applied was that the expenditure had to be matched to the period over which the debentures remained outstanding, and not claimed wholly in one year. The earlier contrary view was treated as not controlling in light of the later Supreme Court principle on spreading such expenditure over the relevant tenure.
Conclusion: The premium was not allowable in full in one year and had to be allowed proportionately over the period of the debentures.
Final Conclusion: The assessee succeeded only to a limited extent. The capital gains issue was decided against year-splitting and the debenture premium claim was allowed only on a spread-over basis, resulting in partial relief overall.
Ratio Decidendi: Where possession of immovable property is given in furtherance of a contract and the arrangement is an integral part of a single sale transaction, the transfer is deemed to occur on part performance for the whole property; expenditure linked to debentures must be allocated over the period for which the debentures remain outstanding.
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