Agreement to sell treated as transfer for capital gains, enabling prior purchase within one year to secure section 54 exemption

Agreement for sale that creates an enforceable right in personam and is accompanied by transfer of possession or substantial advance consideration constitutes a transfer under the statutory definition of transfer; consequently, a prior purchase made within one year before such deemed transfer qualifies for capital gains exemption under section 54, as the purchaser acquires the right to specific performance. The requirement that the agreement create a legally enforceable right and irrevocable commitment to sell was decisive in allowing the exemption where those facts were present.

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Issues: (i) Whether the Agreement for Sale dated 01.12.2016 constitutes a "transfer" under Section 2(47) of the Income-tax Act, 1961 thereby entitling the assessee to claim exemption under Section 54 for purchase of a residential house on 04.12.2015.

Analysis: Relevant statutory provisions include Section 54 (relief for investment in residential house), Section 2(47) (definition of "transfer" including extinguishment of rights), and the temporal limits in Section 54 (purchase within one year prior or two years after the date of transfer). The facts include an Agreement for Sale dated 01.12.2016 supported by substantial advance consideration of Rs. 2.47 crores and subsequent registration of the deed on 30.03.2017; the new residential property was purchased on 04.12.2015 (within one year prior to 01.12.2016). Judicial authorities applying Section 2(47) to agreements creating enforceable rights and enabling specific performance were relied upon. Applying the legal framework to these facts: an agreement creating an enforceable right in favour of the purchaser, supported by substantial advance and permitting specific performance, effects extinguishment/transfer of rights within the meaning of Section 2(47); such transfer date qualifies the temporal test under Section 54 for the earlier acquisition on 04.12.2015. Competing authority distinguishing agreement and registered sale deed was considered and found distinguishable on facts and on the point of date of transfer under Section 2(47).

Conclusion: Issue (i) is decided in favour of the assessee; the Agreement for Sale dated 01.12.2016 is to be treated as the date of transfer under Section 2(47) for the purposes of Section 54, and the assessee is entitled to the exemption claimed under Section 54.

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