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Facts
The assessee claimed exemption under Section 54 for capital gains arising from the sale of a property, based on an unregistered agreement to purchase another property. The Assessing Officer disallowed the exemption, citing the unregistered nature of the agreement and the vendor's unclear title.
Held
The Tribunal held that the term 'purchase' in Section 54 is not restricted to a registered sale deed and can include transactions based on an agreement to sell, especially when substantial payment has been made and possession has been taken. The assessee's claim for exemption under Section 54 was thus upheld.
Key Issues
Whether an unregistered agreement to purchase a property, coupled with substantial payment and possession, qualifies for exemption under Section 54 of the Income Tax Act for capital gains.
Sections Cited
54, 143(3), 2(47), 53A, 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER /Del./2019, A.Y. 2016-17 Income Tax Officer Vs. Anju Madhan Ward-53(3), E-108, Malcha Marg, New Delhi Diplomatic Enclave Chhanakya Puri, Delhi 110021 New Delhi PAN: AALPM2084K (Appellant) (Respondent) Assessee by Shri I.P.Bansal, Adv. Shri Vivek Bansal, Adv. Shri Vishal Chechi, Adv. Revenue by Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing 20/01/2026 Date of Pronouncement 13/03/2026 ORDER
PER S. RIFAUR RAHMAN, AM
The Revenue has filed appeal against the order of the Learned Commissioner of Income-Tax(Appeals)-23, New Delhi [“Ld. CIT(A)”, for short] dated 17.09.2019 for the Assessment Year 2016-17.
Brief facts of the case are the assessee along with her husband (Sh. Lalit Mohan Madhan) has purchased the property W-135, Greater Kailash-1, New Delhi in 1994-95. During FY 2010-11, 2011-12 and 2012-13 the assesse has incurred expenditure on improvement of property to the extent of Rs. 31,57,738/- Rs. 20,68,593/- and Rs. 22,40,413/- respectively. The assesse further constructed parking +four floors on the said property and sold all the floors with total sale consideration of Rs. 8.40 Crores during AY 2016-17. The assessee claimed exemption u/s 54 of the Income Tax Act, 1961 (for short ‘the Act’) to the extent of Long term capital gain earned by her to the extent of Rs. 6,68,29,816. During the assessment proceedings, the Assessing Officer (‘AO’) observed that the assessee has taken exemption on the basis of unregistered agreement to purchase that she has entered with Sh, Prateek Madhan (son of assessee) for 25% share of property E-108, Malcha Marg. The Ld. AO observed that Sh. Prateek Madhan himself does not have clear title on the above said property and the same is still under litigation in the court of ADJ-02 & Waqf Tribunal. After considering the submissions of the assessee, the Ld. AO not convinced with the submissions of the assessee disallowed the exemption claimed by the assessee.
3. Aggrieved with the above order, the assessee preferred an appeal before the ld. CIT(A)-23, New Delhi. The assessee filed a detailed submission before the First Appellate Authority. Before Ld. CIT(A), the assessee submitted that the vendor got the clear title on 16.10.2012 vide conveyance deed dated 16.10.2012, the property was converted into free hold property in favour of the vendor. Further, it was submitted that the President of India acting through the Land & Development officer, Ministry of Urban Development, executed a conveyance deed dated 16.10.2012 in favour of the vendor and the relevant details are reproduced at page no. 3 of the impugned order. Before Ld. CIT(A), the assessee further submitted the details of the agreement to sell in respect of the same property to M/s. Jain Realty Ltd, Kolkata and along with the relevant background. Further, it was brought to the notice of Ld. CIT(A) that in para 3 of the conveyance deed dated 16.10.2012, vide letter No. LDO/LS4/251 dated 05.10.2012, the name of Smt. Kuwarni Padmini Shah, through GPA Jaswant Singh was last mutated. Further, it was submitted that the para no. 4 of the conveyance deed dated 16.10.2012, in support, and pointed out that it was mentioned therein that no one objected to the mutation/substitution of the names of the lessee above made by the lessor (L&DO) nor had in any manner claimed to be the successor in the interests of the original lessee or of any other person claiming through the original lessee.
Further, it was submitted that the assessee has claimed the benefit u/s 54 of the Act by fulfilling the conditions specified in the above section. The Ld. CIT(A) has dealt with the main controversy that the agreement to sell has not been registered. In this context, Ld. CIT(A) relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Kuldeep Singh [2014] 49 taxmnn.com 167 (Delhi) and decision of Hon’ble Madhya Pradesh High Court in the case of Smt. Shashi Verma vs. CIT 224 ITR 106 (MP) and gave relief to the assessee by observing as under:
“The Hon'ble Delhi High Court in the case of CIT Vs. Kuldeep Singh (supra) [2014] 49 taxmann.com 167 (Delhi) has explained the meaning of the expression purchased' in the context of section 54 of the Act in following words: - "8. The word 'purchase' can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. Purchase' can also refer to payment of consideration or part consideration alongwith transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT V. T.N Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word 'purchase'. It was observed that the word 'purchase' used in Section 54 of the Act should be interpreted pragmatically. In a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that purchase primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money's worth. The word 'purchase', it was observed was of a plural semantic shades and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain, the symmetry was simple; the language was plain. 4
Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received RS.15 lacs by way of eamest money and subsequently received the balance sale consideration of Rs.1.17 crores (total being Rs. 1.32 crores) when the sale deed was executed on 24th September, 2004. In the meanwhile, the assessee had purchased another house on 30th April, 2003. Benefit under Section 54 was denied) by the High Court observing that the new house had been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient the purpose of Section 2(47), which defines the term transfer in relation to a capital asset. in the light of the factual matrix, it was observed that the intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observations made in the said decision are also relevant on the question whether the payments made by the assessee to the person with whom he had entered into an earlier agreement to sell should be allowed to be set off as expenses incurred in relation to the sale deed which was executed."
5.4 The Hon'ble Delhi High Court further referred to the decision of Hon'ble Madhya Pradesh High Court in the case of Smt. Shashi Varma Vs. CIT (224 ITR 106(M.P)) and that of the Hon'ble Calcutta High Court in the case of CIT Vs. Smt. Bharati C. Kothari (244 ITR 352(Cal))} and opined that when substantial investment was made in the new property, it should be deemed that sufficient steps had been taken and it would satisfy the requirements of section 54 of the Act. As per the Hon'ble High Court, the basic purpose behind section 54 of the Act is to ensure that the assessee is not taxed on the capital gain, if he replaces his house and spend money earned on the capital gain within the stipulated period. 5.5 The Hon'ble Delhi High Court categorically held that the word 'purchase' used in section 54 of the Income Tax Act, 1961 is not restricted to or confined to registered sale deed. The relevant portion of the judgment is reproduced below: "13. The view we have taken gets support from sub-section (2) to Section 54. The aforesaid sub-section requires the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word 'purchase' is used in sub-section (2) and indicates that the said word is not restricted or confined to registered sale deed or even possession but has a wider connotation. The proviso supports the aforesaid interpretation and stipulates that the amount deposited but not utilized wholly or partly for purchase or construction of new asset within the specified period will be charged to tax under Section 45 in the previous year in which the period of three years from the date of transfer of original asset expired. The period of three years is stipulated as this is the longer period specified in the sub-section (1) to Section 54. It is only the balance amount which is not utilized which is to be brought and charged to tax. The entire amount of sale consideration or the capital gains is not to be brought to tax, but the unspent amount/figure is taxed."(emphasis supplied) 5.6 Identical issue has also been decided by Hon'ble Delhi High Court while delivering judgment in case of Balraj vs. CIT [2002] 123 Taxman 290 (Delhi). In that case the Assessing Officer, the appellate authority as well as the Tribunal rejected the claim of the assessee on the ground that he did not 6 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. The Hon'ble High Delhi Court held that the Assessing Officer, the appellate authority as well as the Tribunal erred in holding that for the purpose of applicability of section 54, registration of document is imperative. 5.7 The Hon'ble High Court also held that 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 purchase. Moreover, the ownership of the property may have different connotations in different statutes. The relevant portion of the judgment is reproduced below: "2. The basic fact of the matter is not in dispute. The assessee sold a property, 15/16, East Patel Nagar, New Delhi, belonging to him on 3-12-1974 for Rs. 98,000. By reason of the agreement of sale coupled with possession the assessee purported to have purchased a property No. 12, West Patel Nagar, New Delhi, for Rs. 2,03,000 on 6-2-1975. It is not in dispute that if the aforementioned transaction amounts to purchase of property, the same would be within a period of one year. The only question, which, therefore, arises for consideration is whether the aforementioned agreement dated 6-2-1975 would answer the description of purchase within the meaning of section 54 of the Income-tax Act, 1961 ('the Act'). Out of the consideration of Rs. 2,03,000, the assessee admittedly at the time of entering into the aforementioned agreement paid a sum of Rs. 1,73,000 which was more than the amount of Rs. 98,000 which he received by way of consideration in terms of the transaction which took place on 3-12- 1974. Section 54 relates to profit on sale of property used for residence. The said provision reads, thus: “54. Profit on sale of property used for residence. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head 'Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place……”
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 purchase. Moreover, the ownership of the property may have different connotations in different statutes. The question which arises for consideration appears to be squarely covered by a decision of the Apex Court in C/T v. Τ.Ν. Aravinda Reddy (1979) 120 TR 46' 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 rea integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P.) Ltd [1997] 226 ITR 6257. 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. C/T [1999] 239 ITR 775 and this Court in CIT v. R.L. Sood [2000] 245 ITR 727 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, Le, the assessee is entitled to exemption in terms of section 54." (emphasis supplied) 5.8 The parity of reasoning explained by the Hon'ble Delhi High Court in the cases of Kuldeep Singh (supra) and Balraj(supra), squarely covers the controversy in the present case in favour of the appellant and it is held that in spite of the fact that the agreement was not registered, the transaction 8
under consoderarion would be treated as a "purchase" within the meaning assigned to it by provisions of section 54. 6.1 Regarding controversy about (earlier) agreement to sale in FY 2010-11, entered into with M/s. Jain Realty Ltd., it is noted that the process of conversion of the property from lease-hold to free-hold was underway in the office of the Land & Development Officer, Ministry of Urban Development. A perusal of para 3 of the conveyance deed dated 16.10.2012 showed that the name Smt. Kuwarni Padmini Shah through GPA Jaswant Singh was last mutated vide letter No. LDO/LS4/251 dated 05.10.2012. Subsequently, the title in the property was conveyed to the vendor vide the conveyance deed dated 16.10.2012. Therefore, the title in the property under consideration was transferred to vendor on 16.10.2012. Since, the present agreement to sell is dated 06.06.2015, therefore, the question of title is to be determined as on 06.06.2015 which would be certainly be governed by the conveyance deed dated 16.10.2012 and in these circumstance, the position of title before 16.10.2012 is of no consequence. 6.2 Regarding pendency of court case before ADJ-02 & Waqf Tribunal/NDD, PHC, the argument of the AR that filing of case does not disentitle any owner to sell the property which he/she is otherwise entitled to sell, until and unless there is stay on sale, cannot be brushed aside. Another argument of the AR is also acceptable that the details of this case are in public domain i.e. internet and court file. Form the documents submitted by the AR, it is seen that the dispute is between Shri Jagdeep Singh and Kuwarni Padmini Shah. The vendor is not even a party to the dispute. The dispute is about legality of entitlement of late Shri Harkishan Singh to enter into the agreement to sell dated 18.08.1959, in his individual capacity because the claim is that the property was purchased in 1952 from Joint family funds. Shri Jagdeep Singh has lost the case in first stage. The order dated 05.11.2016 dismissed the civil suit bearing No. 56639/2016, inter alia mentioning that the case was time barred due to inordinate delay of 50 years. The above said pending case is an appeal for restoration of that dismissed civil suit. 6.3 A perusal of the para 3 and 4 of the conveyance deed dated 16.10.2012 showed that vide letter No. LDO/LS4/251 dated 05.10.2012, the name Smt. Kuwarni Padmini Shah through GPA Jaswant Singh was last mutated. As per the conveyance deed, no person objected to the mutation/substitution of the names of the lessee above made by the lessor (L&DO) or had in any manner claimed to be the successor in the interests of the original lessee or of any other person claiming through the original lessee. 6.4 In view of the above discussion, in the facts and circumstances of the case, it is difficult to hold that on date of entering into the agreement to sell under consideration i.e. on 06.06.2015, there was any bar on the vendor to enter into the agreement to sell. Of course, it is well settled law that a person cannot transfer a better right than what he had at the time of transfer. In case, subsequently, the vendor is declared to be without title on 06.06.2012, as a consequence of a decree of competent court of law, necessary legal consequences would follow.
7. In view of the above discussion, the sole ground of appeal
is allowed and as a consequence, the impugned addition is deleted.”
5. Aggrieved with the above order, the revenue is in appeal before us raising following grounds of appeal: -
“1. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 6,68,29,816/- levied by the Assessing Officer u/s 143(3) of the Act on account of Capital gain on property. The appellant sold the property for consideration of Rs. 8,40,00,000/- and earned a capital gain of Rs. 6,68,29,816/- and claimed the entire amount of capital gain u/s 54 on account of purchase of another property. The AO disallowed the claim of exemption u/s 54 on the following grounds: (1) The agreement to sell has not been registered. (2) The vendor of the property under purchase did not have a clear title.”
5.1 Further, Revenue filed additional grounds of appeal:
“1. On the facts and circumstances of the case, the ld. CIT(A) erred in violating Rule 46A of Income Tax as no remand report was called from 10
AO on additional evidence submitted by assessee before the Ld. CIT(A) which is evident from Par 4.3 on page 3 of the CIT(A) order.”
At the time of hearing, Ld. DR submitted that the above additional ground is filed with the approval of PCIT-12, New Delhi and the additional ground raised a legal issue and all the relevant facts are already available on record and she prayed the same may be admitted for adjudication. Ld. DR relied on the decision of Suraj Lamp & Industries (P) Ltd.(SC) and she brought to our notice para 16 of the order and submitted that immovable property can be legally and lawfully transferred / conveyed only through a registered deed of conveyance.
On the other hand, Ld. AR for the respondent/assessee did not object to the same and after considering the facts on record, we admit the additional grounds of appeal for adjudication.
8. At the time of hearing, Ld. DR brought to our notice the relevant facts on record from the assessment order and also brought to our notice findings of the Ld. CIT(A) from pages 3 to 10 of the First Appellate order, submitted that the assessee has filed additional evidences before the ld. CIT(A) and Ld. CIT(A) has disposed off the appeal without giving proper opportunity to the Ld. AO. She submitted that thereby violated the Rule 46A of the ITAT Rules and submitted that no remand report was called from the Ld. AO and additional evidence submitted by the assessee. In this regard, she supported the findings of the ld. AO.
8.1 On the other hand, Ld. AR brought to our notice para 4.3 of the impugned order and submitted that the vendor was assessed to tax, brought to our notice page 4 of the assessment order and submitted that the agreement to sell with Sh. Prateek Madhan i.e. vendor is already submitted before the Ld. AO as part of sale agreement. He submitted that all the relevant information is already part of the submission before the Ld. AO and it cannot be treated as additional evidence under Rule 46A. Further, he brought to our notice a copy of the assessment order in the case of Mr. Prateek Madhan wherein the same transaction was accepted by the Ld. AO while completing the assessment in his hand wherein he has disclosed a long term capital gain and claimed a deduction u/s 54 of the Act. He submitted the same addition cannot be made in the hands of the appellant. In this regard, he relied on the decision of Hon’ble Supreme Court in the case of Singapore Airlines Ltd. v. CIT (2022) 144 taxmann.com 221 (SC), and in the case of Nagubai Ammal nd Ors. vs. B. Shama Rao and Ors.
9. Considered the rival submissions and material placed on record, we observed that the assessee has sold the property and claimed deduction u/s 54 of the Act and purchased a property for a consideration of Rs. 7 crores and the above said property was purchased from Sh. Prateek Madhan, and it was claimed that 12 the possession also was taken over on 06.06.2015. The main controversy raised by the Ld. AO is that the above said property was not registered as well as the vendor was not having proper title on the above said property. We observed that the above said issue was considered by Ld. CIT(A) who addressed both the issue of making substantial payment towards the property and also taken over the possession of the property, the issue relating to the title of the property. It is a fact on record that the assessee has paid a substantial amount to the vendor and taken over the possession. We further noticed that the same transaction was accepted in the case of the vendor and the relevant assessment order was passed in his case. Further, we observed that since the substantial amount was already paid and possession was already taken over, the present case falls squarely under section 53A of the Transfer Property Act, even though the relevant transaction was not registered. However, we observed that the assessee has made part performance from her side. Therefore, the above section protects a transferee in possession even when the transfer document is not registered or not firmly completed. Coming to the submissions of the Ld. DR that registration of the immovable property is mandatory and she has relied on the decision of Suraj Lamp & Industries (P) Ltd. (supra). We observed from the same decision that the Hon’ble Court has itself observed that “nothing prevents affected parties from getting registered deeds of conveyances to complete their title. The said Sale Agreement/ General Power of Attorney/ WILL transactions may also be used to obtain specific performance or to defend possession u/s 53A of the Transfer of Property Act”.
Coming to the issue of title, we observed that Ld. CIT(A) has elaborately dealt with the issue of expression “purchase” in the context of Section 54 of the Act by relying on the decision of Kuldeep Singh (supra), in the case of Smt. Shashi Verma (supra), Smt. Bharati C. Kothari (Supra), and it was held that in substantial investment was made in the new property, it should be deemed that sufficient steps had been taken and it would specify the requirement of Section 54 of the Act. After considering the detailed findings of the Ld. CIT(A), we observed that the Ld. CIT(A) has elaborately addressed the issue of purchase and the issue of title which was mutated in favour of the Smt. Kuwarni Padmini Shah and relevant conveyance deed dated 16.10.2012 elaborately dealt with. Considering the detailed findings of the ld. CIT(A), we do not see any reason to disturb the same. Once again coming to the main grievance of the Revenue that Rule 46A of the Income Tax Rules was not followed by the Ld. CIT(A), we noticed that the relevant conveyance deed based on which Ld. CIT(A) has given relief was already placed on record before the Ld. AO. Therefore, there is no additional evidences filed by the assessee during the appellate proceedings. Therefore, the additional ground raised by the Revenue is accordingly dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this 13th March, 2026.