Capital gains indexation and construction cost claims turn on effective transfer and documentary proof of property improvement.

For capital gains computation, the year of acquisition was held to follow the effective transfer reflected by payment of full consideration and delivery of possession, not merely the later date of registration; accordingly, the earlier financial year had to be used for indexation. The assessee was also allowed deduction of the cost of completion and related construction improvements because the registered deeds showed the property changed from semi-finished to fully constructed, and the claim could not be rejected solely for lack of old bills or vouchers where the construction was otherwise evident and similar treatment had been accepted for co-owners. Capital gains were therefore required to be recomputed on that basis.

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Issues: (i) Whether the year of acquisition of the immovable property, for indexation purposes, was financial year 1996-97 or financial year 1998-99. (ii) Whether the assessee was entitled to deduction of cost incurred for completion of construction and related improvement while computing capital gains.

Issue (i): Whether the year of acquisition of the immovable property, for indexation purposes, was financial year 1996-97 or financial year 1998-99.

Analysis: The registered purchase deed recorded that the full consideration had been paid in April 1996 and possession had been handed over in April 1996. The Revenue did not bring any contrary material to dislodge those recitals. The later date of registration, by itself, did not defer the transfer where possession had already been handed over and consideration paid. In such circumstances, the transfer was complete for the purposes of capital gains law by reason of the statutory concept of transfer read with possession in part performance.

Conclusion: The year of acquisition was financial year 1996-97, and the Cost Inflation Index applicable to that year had to be adopted. The issue is decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to deduction of cost incurred for completion of construction and related improvement while computing capital gains.

Analysis: The purchase deed described the property as a semi-finished building, whereas the sale deed described it as a fully constructed residential building. That change in description established that construction was completed after acquisition. The claim could not be rejected in a blanket manner merely because bills and vouchers were not produced, especially when the construction activity was otherwise evident from the registered documents. The same property and similar facts were accepted in the cases of the other co-owners, and no distinguishing material was shown to justify inconsistent treatment. The principle of consistency and judicial discipline therefore required parity in computation.

Conclusion: The assessee was entitled to deduction of the cost incurred for completion of construction, and the corresponding adjustment in capital gains computation was to be allowed. The issue is decided in favour of the assessee.

Final Conclusion: The assessment of capital gains was required to be recomputed by adopting the earlier year of acquisition and by allowing the construction-related deduction, while the remaining grounds were not independently pursued and were treated as infructuous.

Ratio Decidendi: For capital gains computation, the year of acquisition follows the effective transfer evidenced by payment and delivery of possession, not merely the later date of registration; and where construction is shown by registered documents and similar co-owners are accepted on the same footing, the claim cannot be denied solely for want of old supporting vouchers.

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