Property income shifts after possession and substantial consideration pass, while fixed-deposit interest on sale proceeds remains separately taxable.

Where property was agreed to be sold, substantial consideration had been received, and possession had been delivered, the transaction was treated as falling within section 53A of the Transfer of Property Act, 1882, so the transferors were not assessable on the property income merely because the conveyance deed was still unregistered. Interest earned on fixed deposits created out of the sale proceeds was treated as a separate accretion and taxed under income from other sources, not as property income. The assessment was therefore adjusted by deleting the house property addition while sustaining tax on the fixed-deposit interest.

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Issues: (i) Whether income from the property known as Scindia House was taxable in the hands of the transferors after execution of the agreement to sell and delivery of possession, though the conveyance deed had not yet been registered; (ii) Whether the interest earned on fixed deposits made out of the sale proceeds was taxable in the hands of the assessee under the head income from other sources.

Issue (i): Whether income from the property known as Scindia House was taxable in the hands of the transferors after execution of the agreement to sell and delivery of possession, though the conveyance deed had not yet been registered.

Analysis: The property had been agreed to be sold, substantially the entire consideration had been received, and possession had been handed over to the vendee. In such circumstances, the transaction was held to attract section 53A of the Transfer of Property Act, 1882. The transferors were treated as having lost the right to be assessed on the property income merely because the formal conveyance had not been registered.

Conclusion: The property income was not taxable in the hands of the assessee.

Issue (ii): Whether the interest earned on fixed deposits made out of the sale proceeds was taxable in the hands of the assessee under the head income from other sources.

Analysis: Since the assessee had invested his share of the sale proceeds in fixed deposits, the interest earned thereon was held to be a separate accretion to income and not part of the property income. The adjustment of the assessment was confined to deleting the property income and bringing the FDR interest to tax under the proper head.

Conclusion: The interest on the fixed deposits was taxable in the hands of the assessee under the head income from other sources.

Final Conclusion: The assessment was modified by deleting the house property addition and sustaining taxability of the fixed-deposit interest, resulting in relief to the assessee only to that extent.

Ratio Decidendi: Where possession and substantial consideration have passed under an agreement to sell, the transferor is not assessable on the property income by reason of the continuing legal title alone, but interest earned on invested sale proceeds remains separately taxable as income from other sources.

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