ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), MEERUT, MEERUT vs. PREM SAPRA, NEW DELHI

4 Thus the revenue filed an appeal against the order of First Appellate Authority before us, wherein following grounds of appeal are raised by revenue:

“1 Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the fact that the Mr. Om Prakash Sapra [Husband of the assessee) has made agreement of the property with the developer M/s Hacienda Projects Pvt. Ltd. on 09.04.2013 along with co- owner Mrs PremSapra (assessee) for the purpose of deduction u/s 54 of the 1.T. Act, 1961 in a case where the transaction was between husband and wife?

2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting agreement of purchase made on 30.07.2020 with her husband Mr. Om Prakash Sapra as the said property was not registered in the name of Mr. Om Prakash Sapra as on 30.07.2020?

3. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee by allowing deduction claimed by the assessee u/s 54 of the I.T. Act, 1961 on the basis of an unregistered agreement of purchase made with her husband Mr. Om Prakash Sapra?

4. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the decision of the High Court of Delhi in the case of Commissioner of Income Tax II Vs. Kuldeep Singh [2014] 49 taxmann.com 167 (Delhi) stating it jurisdictional High Court in the case of the assessee, though the case of the assessee iscovered under the jurisdiction of Hon'ble Allahabad High Court?

ACIT v. Prem Sapra A.Y. 2021-22 5 Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee ignoring the fact that no TDS was deducted by Smt. PremSapra?

6 Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee without confirming that the deed was registered between the developer M/s Hacienda Projects Pvt. Ltd. and the assessee?

7. That the appellant craves leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice, to each other.”

5. Ld. DR challenged the order of the First Appellate Authority allowing the claim of exemption u/s 54 of the Act by the assessee. On the other hand, the Ld. AR relied upon the order passed by the authorities below and has placed reliance upon synopsis placed on record.

“Respondent Assessee individual is a St. Citizen aged about 84 years. As against income declared of Rs 4,19,99,500 in the ITR filed for AY 2021-22, assessment was completed by the Assessment Unit of the Income Tax Dept. (Assessing Officer'/AO) on total income of Rs 7,01,57,800 vide assessment order dated 23/12/2022 passed uls 143(3) r.w.s. 144B of the Income Tax Act, 1961 ('Act') by disallowing exemption/deduction uls 54 of the Act as claimed at Rs.2.81,58.300 on account of investment made of Rs 2,81,58,300 in new under Such exemption/deduction u/s 54 was disallowed by the AO on the sole ground that the investment made in new residential flat/apartment is not evidenced by a registered sale deed as per the requirements of the provisions of Transfer of Property Act and Indian Registration Act and unregistered Agreement to sell as produced is not admissible as evidence

On appeal, NFAC/CIT(A) vide order u/s 250 dated 31/10/2023 stated the facts, grounds of appeal as raised, reproduced written submissions of the Assessee and recorded his findings vide para 6.3 as per which the appeal of the Assessee has been fully allowed and the entire disallowance of Rs.2,81,58,300 made u/s 54 of the Act has been deleted.

Against such deletion of disallowance u/s 54 of Rs.2,81,58,300, Revenue is now in appeal before your honour.

Assessee's contentions/documents relied upon:

1. During the year, the Assessee had sold old residential house property at Meerut for a consideration of Rs. 10,50,00,000 vide sale deed dated 21/07/2020, copy placed at pages 44-59 of PB.

3. Source of purchase of new residential flat/apartment at Noida was made entirely out of sale consideration received from sale of old residential house property at Saket, Meerut kindly see reply dated 01/11/2022 filed before AO/CIT(A), copy placed at pages 41-43 of PB duly supported by Assessee's bank statement with HDFC at pages 63- 64 of PB.

6. Such sale of rights of under construction residential flat as made by the Seller to the Assessee was duly disclosed as part of computation of long-term capital gains/loss in the hands of the Seller and it stands accepted by the Department as is evident from copy of computation of income on the basis of which ITR was filed, acknowledgment of ITR and intimation u/s 143(1) 08/03/2022 placed at pages 81-97 of PB. Once sale of capital asset is accepted in the hands of the Seller, the same cannot be disregarded as purchase of capital asset in the hands of the Purchaser Assessee.

9. For the purpose of claiming deduction u/s 54, it is not necessary that the purchase of capital asset (residential flat or rights in under construction residential flat) is to be evidenced by a registered sale deed as per the requirements of Transfer of Property Act or Indian Registration Act and even unregistered Agreement to Sell is sufficientcoupled with the fact that entire consideration amount of such flat stands paid and even possession of such constructed residential flat has subsequently been obtained by the Assessee within the timelines as prescribed u/s 54 of the Act. Hence, this issue is squarely covered in favour of the Assessee by not only the Delhi High Court judgment in Kuldeep Singh as referred to by CIT(A) but also by following other judgments of Supreme Court, High Court and ITAT, which were duly noted and reproduced by CIT(A) in his appellate order.

ACIT v. Prem Sapra A.Y. 2021-22 ➤365 ITR 389, Sanjeev Lal and Smt. ShailMotil Lal vs. CIT (Supreme Court) Relevant observations and findings of the Apex Court from paras 20, 22, 23, 24 & 25 are reproduced below:

“20. The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December, 2002 can be considered as a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word "transfer" is as under:

'2(47) "transfer", in relation to a capital asset, includes,- (1)** ** (ii) the extinguishment of any rights therein; or.

"The Assessing Officer, the appellate authority as well as the Tribunal rejected the claim of the assessee in respect of the assessment year 1975-76 on the ground that he did not become the owner of the property, as the said transaction was not evidenced by registration thereof as provided under section 17 of the Registration Act. For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property. Section 54 speaks of ACIT v. Prem Sapra A.Y. 2021-22 purchase. Moreover, the ownership of the property may have different connotations in different statutes. The question which arisesfor consideration appears to be squarely covered by a decision of the Apex Court in CIT v. T.N. Aravinda Reddy (1979) 120 ITR 461 where it has been held that the word 'purchase occurring in section 54(1) of the Act had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor's share for consideration to the release and the transferee, the assessee, "purchased" the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1). The question now is no longer res integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625. The Apex Court categorically held that section 22 of the Act does not require registration of sale deed. The meaning of the word 'owner' in the context of section 22 has been held to be a person who is entitled to receive income in his own right. The Apex Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751 and this Court in CIT v. R.L. Sood [2000] 245 ITR 7272 have held that registration of the document is not mandatory for claiming depreciation on the property. In this view of the matter, we have no doubt in our mind that the learned Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative. We, therefore, answer the question in the negative, i.e., the assessee is entitled to exemption in terms of section 54 of the Act" ➤245 ITR 727, CIT vs. R L Sood (Delhi H.C.). ➤211 ITR 804, CIT vs. LaxmichandNarpalNagda (deceased) (Bombay H.C.). ➤216 ITR 376, CIT Vs. Mrs. Hilla JB Wadia (Bom. H.C.).

ACIT v. Prem Sapra A.Y. 2021-22 ➤ 345 ITR 389, CIT vs. SambandamUdayakumar (Karnataka H.C.). ➤ 302 ITR 286, CIT vs. Sardarmal Kothari and Another (Madras H.C.). ➤ 224 ITR 106, Smt. Shashi Varma Vs. CIT (MP). ➤345 ITR 389, CIT vs. SambandamUdayakumar (Karnataka H.C.) ➤ITAT Delhi Bench order dated 23/01/2023 in the case of ACIT vs. Sh. Sanjay Chaudhary (ITA No. 1274/Del/2020), copy placed at pages 129-138 of PB Relevant findings of ITAT vide para 9 & 10 are reproduced at pages 20-21 of PB. ➤ ITAT Ahmedabad Bench judgment in the case of Shri Dinesh Khodidas Patel HUF vs. ITO (ITA No. 1061/Ahd/2017), copy placed at pages 139-147 of PB. Relevant findings of ITAT vide para 7 is reproduced at pages 21-22 of PB.

Section 54 of the Income-tax Act, 1961-Capital gains - Profit on sale of property used for residence - Assessment year 2010- 11- Whether assessee's claim of deduction under section 54 should be reckoned from date of handing over of possession of flat by builder to assessee and not date of registration of flat - Held. yes [In favour of assessee] . ➤148 taxmann.com 34, Sanjay Vasant Jumde v ITO (Pune - Trib). ➤217 ITR 363, CIT vs. Smt. Beena K. Jain (Bombay H.C.) ➤76 taxmann.com 368 Bastimal K. Jain v. ITO (Mumbai - Trib.).

11. Supreme Court judgment in the case of Balram Singh vs. Kelo Devi as relied upon by the AO (copy enclosed at pages 115-121 of PB) was clearly distinguishable as was explained by the Assessee before the CIT(A) - kindly refer to pages 5 & 6 of PB.

In view of the above facts, circumstances and the legal position, the CIT(A) has rightly deleted such disallowance made by the AO u/s 54 of the Act. Hence, all the 7 grounds of appeal as raised by the Revenue deserve to be dismissed as discussed below.

Ground No. 1 as raised by the Revenue is misconceived since transactions of sale/transfer of capital asset between husband and wife (who are separate income tax assessees) is not prohibited under the Income Tax Act. Moreover, such ground does not arise from the orders of the authorities below.

Ground No. 2 & 3 as raised by the Revenue are also misconceived since under construction property could not have been registered prior to its completion by the developer in the name of the Seller as on 30/07/2020 i.e. the date of Agreement to Sell when the rights in such under construction flat (capital asset) were transferred by the Seller in favour of the Assessee Buyer for a consideration thereby fulfilling the requirements of section 54 of the Act.

Ground No. 4 as raised by the Revenue is also misconceived since the CIT(A) vide his findings in the appellate order may have referred to only one judgment of Delhi High Court in the case of CIT vs Kuldeep Singh but the fact remains that such judgment was binding on the authorities below and moreover, this Delhi High Court judgment refers to and relies upon the following further binding judgements of not only High Court but also of Supreme Court:

"CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541 (SC) (para 8), Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 (SC) (para 9), Smt. Shashi Verma v. CIT [1997] 224 ITR 106 (Cal.) (para 10), CIT v. Smt. Bharati C. Kothari [2000] 244 ACIT v. Prem Sapra A.Y. 2021-22 ITR 352/[2001] 117 Taxman 538 (Cal.) (para 10), CIT v. Shahafda Begum [1988] 173 ITR 397/38 Taxman 311 (AP) (para 11) and CIT v. J.H. Gotla156 ITR 323/23 Taxman 14J (para 11)".

Ground No. 5 as raised by the Revenue does not arise from the orders of the authorities below and therefore deserves to be dismissed in limini. At any rate, it is not in dispute, that the full taxes as due on the income of the Seller stands paid and his ITR as filed stands accepted by the Department u/s 143(1) kindly refer to pages 81-97 of PB. Under such circumstances, the AO as well as the CIT(A) were fully aware of the fact that the Assessee could not be treated as an Assessee in default for non-deduction of TDS as per first proviso to section 201(1) of the Act and therefore never raised such issue. Moreover, non-deduction of TDS by the Assessee cannot be a ground for disallowing deduction as admissible u/s 54 of the Act.

Ground No. 6 as raised by the Revenue is also misconceived since the Assessee cannot be expected to do the impossible viz get the Noida Flat registered in her name till the insolvency proceedings as well as litigation filed by Noida Authority against the developer are resolved and Noida Authority permits registration of such Noida Flats of Lotus 300.

Ground No. 7 is general.”

7. The First Appellate Authority has allowed the exemption claimed by assessee u/s 54 of the Act in impugned order, relevant finding of the same is reproduced hereunder:

“6.3 Findings and decision I have considered the submission of the appellant and contextualized these to the facts of the case. I find force in the arguments of the appellant. It is not disputed by the AO that the Assessee has made the investment of Rs.2,81,58,300/- in the purchase of a new residential unit. The only ground taken by the AO is that the agreement to sell ACIT v. Prem Sapra A.Y. 2021-22 had not been registered as per the provisions of the Transfer of Property Act and the Registration Act. In this respect, the issue is covered by the decision of the jurisdictional HIGH COURT OF DELHI in the case of Commissioner of Income-tax, II v. Kuldeep Singh, [2014] 49 taxmann.com 167 (Delhi), wherein it was held as under :- Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential house (Purchase) - Whether where assessee having sold residential property, entered into an agreement with a builder within prescribed period of two years for purchase of flat payment of which was linked to stage of construction, assessee's claim for deduction undersection 54 was to be allowed - Held, yes [In favour of assessee] Respectfully following the above decision, the disallowance of Rs.2,81,58,300/-made by the AO is hereby deleted and the deduction u/s 54 of the Income-Tax Act of an equivalent amount is hereby allowed. Accordingly, the grounds of appeal no. 2,3 and 4 are allowed.”

8. From perusal of finding of the First Appellate Authority it is unequivocal that he had dealt with the only ground taken by the learned AO to deny the claim u/s 54 of the Act, that the agreement to sell had not been registered as per the provisions of the Transfer of Property Act and Registration Act. Thus, according to the First Appellate Authority, the Ld. AO was satisfied that the assessee has satisfied with the other conditions of Section 54 of the Act and dispute is limited to the issue that the agreement to sell had not been registered as per the provisions of the Transfer of Property Act and Registration Act. Now on consideration of order of assessment dated 23.12.2022, we are inclined to the observation of the Ld. First issue that that the agreement to sell had not been registered as per the provisions of the Transfer of Property Act and Registration Act. For the sake of convenience, relevant portion of the Ld. AO’s order is extracted hereunder:

“3.4 Variation proposed on the basis of inference drawn. Based on the reply of the assessee, the following variations are proposed to the total income of the assessee: To avail the deduction u/s 54, the assessee claimed to have invested an amount of s 2,81,58,300/- with agreement sell on 30/07/2020 of a residential Flat/ Apartment under development having an approximate super area admeasuring 339.09 sq. mt. (3650.00 sq. ft.) bearing Flat/Apartment no 2301, on Twenty third floor of Tower No. 06, at Lotus 300, Plot No.GH-01/A situated at sector-107, NoldaDistt. GautamBudh Nagar (U.P.). But the same has not been registered by way of a registered deed A documents necessary to be registered, if it is unregistered will not be admissible as evidence as per section 49 of the 1908 Act. ….. 3.6 Summary of information evidence collected after SCN(if any): The assessee has no valid document to substantiate her claim. The assessee submitted a sale agreement which is not registered. Agreement may be not completed/obeyed fully or revoked in future. 3.7 Point wise rebuttal of reply of the assessee including analysis of any case law relied upon: All sell agreement has to be documented and registered to have to be documented and registered to have a legal validity. Passing its order the Balram Singh vs. Kalo Devi case on September 23, 2022, the Supreme Court has ruled that an unregistered agreement to sell is not admissible as evidence. 3.8 Conclusion drawn: As per the Registration and Other Related Laws (Amendment) Act, 2001, Amendments were made in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act.

ACIT v. Prem Sapra A.Y. 2021-22 By the aforesaid amendment, the words "the contract, though required to be registered, has not been registered, or in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of 1882 Act) is registered, it shall not have any effect in law. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus: "17(1A). The documents containing contracts to transfer for consideration, any Immovable property for the purpose of Section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and If such documents are not registered on after such commencement, then they shall have no effect for the purposes of the said Section 53A." "49. Effect of non-registration of documents required to be registered. No document required by Section 1.7 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall- (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered."

Order pronounced in open court on 20.06.2025.