Sale agreement rights can amount to transfer when proprietary rights are extinguished under income tax law.

An agreement of sale may amount to a transfer under section 2(47) of the Income-tax Act, 1961 where it creates enforceable obligations, restricts the owner's power of alienation, and confers possession and developmental rights on the purchaser. On the stated facts, the assessee's substantial proprietary rights were eroded and corresponding rights in favour of the purchaser were created, amounting to extinguishment of rights in the property. That characterization brought the transaction within section 2(47), attracted section 54B(ii), and made the capital gains chargeable, with the exemption unavailable.

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Issues: Whether an agreement of sale, coupled with the contractual rights created under it, constituted a transfer by extinguishment of rights within section 2(47) of the Income-tax Act, 1961, so as to attract section 54B(ii).

Analysis: The agreement of sale did not merely create an executory arrangement; it imposed enforceable obligations on the assessee, restricted her power of alienation, conferred possession and developmental rights on the purchaser, and provided for the purchaser to receive compensation in the event of acquisition. A contract of sale may not create an interest or charge in the property under property law, but for section 2(47) the relevant question is whether any right of the owner in the property stood extinguished. On the facts, the agreement resulted in erosion of substantial proprietary rights of the assessee and corresponding enforceable rights in favour of the purchaser, amounting to extinguishment of rights in the property.

Conclusion: The agreement of sale constituted a transfer within section 2(47) of the Income-tax Act, 1961, and section 54B(ii) was attracted. The exemption was not available to the assessee and the capital gains were chargeable.

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