Capital gains on immovable property depend on registered transfer, with section 50C relief and section 54 verification requiring fresh examination.

Capital gains on immovable property are discussed as becoming chargeable when actual transfer occurs by registered conveyance, not merely on an agreement to sell, where possession is not handed over in part performance. The note also explains that valuation for long-term capital gains required fresh consideration because the assessee's objections to the DVO report had not been properly addressed, while the first proviso to section 50C(1) was treated as applicable retrospectively where part consideration had been received through account payee banking channels. On section 54, construction expenditure for a second house was treated as separately examinable from land cost, but the factual verification was incomplete and the matter was restored for fresh inquiry.

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Issues: (i) whether capital gains from transfer of the immovable properties were chargeable in the year of the agreement to sell or in the year of the registered conveyance; (ii) whether the cost of acquisition and the sale consideration for computing long-term capital gains were correctly determined, including the applicability of section 50C and its proviso; and (iii) whether exemption under section 54 was available for construction of the second house property and whether the issue required fresh verification.

Analysis: The agreement to sell did not result in transfer in part performance because possession was not handed over under the agreement; actual title and possession passed only on execution of the registered sale deeds. The relevant transfer therefore fell in the previous year corresponding to the assessment year under appeal, and capital gains were taxable in that year under the charging scheme for capital gains. On computation, the private valuation adopted by the assessee and the average method adopted by the first appellate authority were found unsatisfactory; the valuation reference made to the DVO was not to be ignored, but the assessee's objections to the DVO report had not been properly dealt with, warranting fresh consideration of fair market value for the cost of acquisition. As to sale consideration, the agreement to sell and the registered deeds were subsequent to the insertion of section 50C, and the first proviso to section 50C(1) was held to apply retrospectively where part consideration had been received through account payee banking channels. On section 54, the assessee's claim for construction cost of a new house was distinguishable from the cost of the plot and could not be rejected merely because the plot was purchased earlier; however, the factual verification of construction expenses had not been properly undertaken and the issue suffered from procedural infirmity under rule 46A.

Conclusion: Capital gains were held taxable in the year of registered transfer, the section 50C benefit was available on the facts, the valuation-based computation of cost of acquisition was set aside for fresh determination after considering objections, and the section 54 claim for construction expenditure was restored to the Assessing Officer for verification.

Final Conclusion: The cross appeals were disposed of with partial relief to both sides, with the disputed valuation and exemption issues remitted for fresh action in accordance with law.

Ratio Decidendi: For capital gains on immovable property, the year of chargeability follows the year of actual transfer by registered conveyance unless possession is effectively handed over in part performance, and a statutory proviso curative in nature may apply retrospectively where it removes an unintended hardship and the factual conditions for its application are satisfied.

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