Registered sale deed and agricultural character determine tax treatment, with exemption prevailing where conflicting views exist.

A registered sale deed for agricultural land was treated as effecting transfer on 13 September 1972, because the deed recorded possession and payment terms and there was no evidence that the cheque condition postponed completion of the sale. On that basis, any capital gains consequence related to the earlier assessment year. The receipt from sale of the agricultural land was also treated as exempt on the view that the land retained its agricultural character, and the mere fact of its location within municipal limits did not alter that character. In light of conflicting authorities, the interpretation favourable to the assessee was applied, and the consequential interest liability did not survive.

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Issues: (i) Whether the sale of the agricultural land was completed on 13 September 1972 or only on 15 October 1975 for the purpose of capital gains taxation. (ii) Whether the consideration received on sale of the agricultural land was liable to capital gains tax or was exempt as agricultural income, and the connected levy of interest.

Issue (i): Whether the sale of the agricultural land was completed on 13 September 1972 or only on 15 October 1975 for the purpose of capital gains taxation.

Analysis: The sale agreement was executed on 7 August 1972 and registered on 13 September 1972. The deed recorded that possession was given and that the balance consideration was covered by a cheque with a stipulation regarding dishonour. There was no material showing that the parties acted upon the condition as a postponement of the transfer or that the transaction remained inchoate until 1975. The surrounding conduct and absence of any dispute, refund claim, or contemporaneous variation of the deed indicated that the stipulation was not intended to defer the operative transfer.

Conclusion: The sale was completed on 13 September 1972, and any capital gains consequence, if at all, was relatable to the earlier assessment year.

Issue (ii): Whether the consideration received on sale of the agricultural land was liable to capital gains tax or was exempt as agricultural income, and the connected levy of interest.

Analysis: The land was admittedly agricultural in character and its change of location within municipal limits did not, by itself, alter that character. In view of conflicting judicial views on the tax treatment of receipts from sale of agricultural land, the rule favouring the assessee was applied. Once the receipt was treated as agricultural income, capital gains taxation did not survive. The question of interest under section 139(8) was consequential to the taxability finding.

Conclusion: The sale proceeds were held to be exempt from capital gains tax, and the consequential interest did not survive.

Final Conclusion: The departmental challenge to capital gains liability failed, while the assessee succeeded on the substantive exemption issue, with only limited grounds remaining without separate adjudicatory consequence.

Ratio Decidendi: Where the terms of a registered sale deed show completed transfer and the surrounding conduct does not support postponement of the transaction, the transfer is treated as complete on registration; and where conflicting authorities exist on the tax treatment of sale proceeds from agricultural land, the interpretation favourable to the assessee prevails.

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