A court order delayed my sale deed. Does my s.54 exemption run from the agreement to sell?
Yes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement.
Decided by the Supreme Court (Anil R. Dave J and Shiva Kirti Singh J) on 2014-07-01, reported as [2014] 365 ITR 389 (SC); [2014] 225 Taxman 239 (SC); [2014] 269 CTR 1 (SC); [2014] 46 taxmann.com 300 (SC); Civil Appeal Nos. 5899-5900 of 2014. It bears on section 2(47), section 45, section 54, section 54(1), section 260A of the Income Tax Act 1961, in Capital Gains and Capital Gains Exemptions matters.
It answers the refusal of s.54 or s.54F on the ground that the time limit runs from the registered deed, when the deed slipped for reasons outside the assessee's control. The Court's route is that the vendee's enforceable right, including the right to sue for specific performance, means rights were extinguished on the agreement date, and that exemption provisions are to be read purposively. It is applied where an agreement to sell was executed but the deed was not registered in time.
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House No. 267, Sector 9-C, Chandigarh was the self-acquired property of Shri Amrit Lal, whose will gave a life interest to his wife and thereafter the house to two sons of his pre-deceased son and to that son's widow. On the widow Smt Shakuntla Devi's death on 29 August 1993 the ownership vested in the appellants and another grandchild. On 27 December 2002 the appellants agreed to sell the house to Shri Sandeep Talwar for Rs 1.32 crore and received Rs 15 lakh as earnest money. On 30 April 2003, within a year of that agreement, they bought House No. 528, Sector 8, Chandigarh. Meanwhile Shri Ranjeet Lal, another son of the testator, had challenged the will and obtained an interim order restraining the appellants from dealing with the property; that suit was dismissed in May 2004 for want of representation, and the sale deed was registered on 24 September 2004. For assessment year 2005-06 the appellants did not disclose the long term capital gain, believing s.54 applied. The Assessing Officer held that the transfer took place on 24 September 2004, so the new house had been bought more than a year before it, and charged the gain under s.45. The Commissioner (Appeals) and the Tribunal upheld that, and the Punjab and Haryana High Court dismissed the appeals in ITA Nos. 153 and 154 of 2012 on 29 January 2013 (paras 3 to 10).
The appeals were allowed, the judgments below were quashed and set aside, and the authorities were directed to reassess the appellants' income for assessment year 2005-06 taking into account that they were entitled to the relief, subject to fulfilment of the other conditions of s.54 (para 26). The Court held that, on the definition of transfer in s.2(47), which includes the extinguishment of any rights in a capital asset, a right in respect of the house had been transferred to the vendee on 27 December 2002 when the agreement to sell was executed, because from that date the appellants could no longer lawfully sell to anyone else and the vendee acquired the right to sue for specific performance (paras 20, 21, 23, 24). The sale deed could not be executed earlier because a competent court had restrained the appellants, and a law-abiding citizen cannot be expected to violate such an order (para 21). Relief under s.54 was therefore available. The Court twice described the facts as peculiar (paras 25, 26 read with para 21), and expressly noted that such a contractual right can be surrendered or neutralised by a later contract or by conduct, so that no transfer results - though that was not this case (para 21).
Section 54(1) requires the new asset to be purchased within one year before or two years after the date of transfer of the original asset, and on the dates as the Assessing Officer took them the new house was bought more than a year before (paras 9, 17, 18). The Court accepted that in normal circumstances an agreement to sell creates only a right in personam and the whole property cannot be said to have been sold on that date; the answer would normally be in the negative (para 20). What changed the answer was s.2(47)(ii), which brings the extinguishment of any rights in a capital asset within 'transfer': once the agreement was executed and earnest money paid, the appellants could no longer sell to anyone else, so some right of theirs was extinguished and a corresponding right was created in the vendee (paras 20, 21, 23). The Court added that the failure to execute the sale deed was for a justifiable reason outside the appellants' control, namely the restraint order in the suit challenging the will (para 21). Independently of the definition, it read s.54 purposively: the legislature's intention is to relieve a person who reinvests the proceeds of one residential house in another within the stipulated period, and although equity and tax are said to be strangers, a purposive interpretation should be given to the Act and a harmonious construction adopted, particularly where an exemption from tax is in issue, following Oxford University Press v. CIT (para 22).
In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.
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Handle my notice → Ask a CA on WhatsAppYes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement. This was decided by the Supreme Court (Anil R. Dave J and Shiva Kirti Singh J) and bears on section 2(47), section 45, section 54, section 54(1), section 260A of the Income Tax Act 1961. It is reported as [2014] 365 ITR 389 (SC); [2014] 225 Taxman 239 (SC); [2014] 269 CTR 1 (SC); [2014] 46 taxmann.com 300 (SC); Civil Appeal Nos. 5899-5900 of 2014. It answers the refusal of s.54 or s.54F on the ground that the time limit runs from the registered deed, when the deed slipped for reasons outside the assessee's control. The Court's route is that the vendee's enforceable right, including the right to sue for specific performance, means rights were extinguished on the agreement date, and that exemption provisions are to be read purposively. It is applied where an agreement to sell was executed but the deed was not registered in time. If it applies to you, the first step is this: Put the agreement to sell on record with its date and show the new house was purchased within the period counted from that date.
House No. 267, Sector 9-C, Chandigarh was the self-acquired property of Shri Amrit Lal, whose will gave a life interest to his wife and thereafter the house to two sons of his pre-deceased son and to that son's widow. On the widow Smt Shakuntla Devi's death on 29 August 1993 the ownership vested in the appellants and another grandchild. On 27 December 2002 the appellants agreed to sell the house to Shri Sandeep Talwar for Rs 1.32 crore and received Rs 15 lakh as earnest money. On 30 April 2003, within a year of that agreement, they bought House No. 528, Sector 8, Chandigarh. Meanwhile Shri Ranjeet Lal, another son of the testator, had challenged the will and obtained an interim order restraining the appellants from dealing with the property; that suit was dismissed in May 2004 for want of representation, and the sale deed was registered on 24 September 2004. For assessment year 2005-06 the appellants did not disclose the long term capital gain, believing s.54 applied. The Assessing Officer held that the transfer took place on 24 September 2004, so the new house had been bought more than a year before it, and charged the gain under s.45. The Commissioner (Appeals) and the Tribunal upheld that, and the Punjab and Haryana High Court dismissed the appeals in ITA Nos. 153 and 154 of 2012 on 29 January 2013 (paras 3 to 10). The matter was decided on 2014-07-01 by the Supreme Court (Anil R. Dave J and Shiva Kirti Singh J). On those facts the Supreme Court held as follows. The appeals were allowed, the judgments below were quashed and set aside, and the authorities were directed to reassess the appellants' income for assessment year 2005-06 taking into account that they were entitled to the relief, subject to fulfilment of the other conditions of s.54 (para 26). The Court held that, on the definition of transfer in s.2(47), which includes the extinguishment of any rights in a capital asset, a right in respect of the house had been transferred to the vendee on 27 December 2002 when the agreement to sell was executed, because from that date the appellants could no longer lawfully sell to anyone else and the vendee acquired the right to sue for specific performance (paras 20, 21, 23, 24). The sale deed could not be executed earlier because a competent court had restrained the appellants, and a law-abiding citizen cannot be expected to violate such an order (para 21). Relief under s.54 was therefore available. The Court twice described the facts as peculiar (paras 25, 26 read with para 21), and expressly noted that such a contractual right can be surrendered or neutralised by a later contract or by conduct, so that no transfer results - though that was not this case (para 21).
Section 54(1) requires the new asset to be purchased within one year before or two years after the date of transfer of the original asset, and on the dates as the Assessing Officer took them the new house was bought more than a year before (paras 9, 17, 18). The Court accepted that in normal circumstances an agreement to sell creates only a right in personam and the whole property cannot be said to have been sold on that date; the answer would normally be in the negative (para 20). What changed the answer was s.2(47)(ii), which brings the extinguishment of any rights in a capital asset within 'transfer': once the agreement was executed and earnest money paid, the appellants could no longer sell to anyone else, so some right of theirs was extinguished and a corresponding right was created in the vendee (paras 20, 21, 23). The Court added that the failure to execute the sale deed was for a justifiable reason outside the appellants' control, namely the restraint order in the suit challenging the will (para 21). Independently of the definition, it read s.54 purposively: the legislature's intention is to relieve a person who reinvests the proceeds of one residential house in another within the stipulated period, and although equity and tax are said to be strangers, a purposive interpretation should be given to the Act and a harmonious construction adopted, particularly where an exemption from tax is in issue, following Oxford University Press v. CIT (para 22). In the words reproduced by the source cited on this page: "In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed." The decision followed or applied Oxford University Press v. CIT [2001] 247 ITR 658 / 115 Taxman 69 (SC).
It was decided by the Supreme Court on 2014-07-01 and is reported as [2014] 365 ITR 389 (SC); [2014] 225 Taxman 239 (SC); [2014] 269 CTR 1 (SC); [2014] 46 taxmann.com 300 (SC); Civil Appeal Nos. 5899-5900 of 2014. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 2(47), section 45, section 54, section 54(1), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed, the judgments below were quashed and set aside, and the authorities were directed to reassess the appellants' income for assessment year 2005-06 taking into account that they were entitled to the relief, subject to fulfilment of the other conditions of s.54 (para 26). The Court held that, on the definition of transfer in s.2(47), which includes the extinguishment of any rights in a capital asset, a right in respect of the house had been transferred to the vendee on 27 December 2002 when the agreement to sell was executed, because from that date the appellants could no longer lawfully sell to anyone else and the vendee acquired the right to sue for specific performance (paras 20, 21, 23, 24). The sale deed could not be executed earlier because a competent court had restrained the appellants, and a law-abiding citizen cannot be expected to violate such an order (para 21). Relief under s.54 was therefore available. The Court twice described the facts as peculiar (paras 25, 26 read with para 21), and expressly noted that such a contractual right can be surrendered or neutralised by a later contract or by conduct, so that no transfer results - though that was not this case (para 21). It arises in Capital Gains and Capital Gains Exemptions matters, on section 2(47), section 45, section 54, section 54(1), section 260A of the Income Tax Act 1961, and was decided by Anil R. Dave J and Shiva Kirti Singh J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Evidence the supervening circumstance in full, here a court order restraining dealing with the property, so it is clear the deed could not lawfully be executed earlier. Argue the extinguishment of rights specifically, rather than a general plea of hardship, because that is what brings the agreement within s.2(47). Do not extend this to an unregistered JDA without dealing with Balbir Singh Maini, which the department will cite in reply.
Still good law. Applied by benches allowing section 54 relief where an agreement to sell was executed although the sale deed was not registered. It sits alongside Balbir Singh Maini, which held an unregistered JDA is not a transfer under section 2(47)(v) — the two turn on different limbs of section 2(47), so the interaction should be argued with care. The page this note was read from was a commercial publisher's write-up and has been removed as a source; the status has not been re-verified against the judgment itself. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two limits should travel with this case. The Court accepted at para 20 that in normal circumstances an agreement to sell does not transfer the property, and decided otherwise only because s.2(47)(ii) treats the extinguishment of rights as a transfer and because a court order had made timely execution of the sale deed impossible; it called the facts peculiar at para 25. It also said at para 21 that the contractual right created by the agreement can be surrendered or neutralised by a later contract or by conduct, in which case there is no transfer. The relief given was a direction to reassess subject to fulfilment of the other conditions of s.54, not an unconditional exemption (para 26). This sits alongside CIT v. Balbir Singh Maini, where the Supreme Court held an unregistered joint development agreement is not a transfer under s.2(47)(v); the two turn on different limbs of s.2(47), so the interaction has to be argued rather than assumed. The judgment carries two internal inconsistencies. At para 18 the agreement to sell is dated 27 September 2002, while every other paragraph gives 27 December 2002; the December date is the one the Court reasoned from. And at para 4 Shri Ranjeet Lal, who filed the suit challenging the will, is said to have died on 2 December 2000, which sits oddly with an interim restraint said to have kept the sale deed from being executed until the suit was dismissed in May 2004. Do not reproduce either date without checking the report. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed, the judgments below were quashed and set aside, and the authorities were directed to reassess the appellants' income for assessment year 2005-06 taking into account that they were entitled to the relief, subject to fulfilment of the other conditions of s.54 (para 26). The Court held that, on the definition of transfer in s.2(47), which includes the extinguishment of any rights in a capital asset, a right in respect of the house had been transferred to the vendee on 27 December 2002 when the agreement to sell was executed, because from that date the appellants could no longer lawfully sell to anyone else and the vendee acquired the right to sue for specific performance (paras 20, 21, 23, 24). The sale deed could not be executed earlier because a competent court had restrained the appellants, and a law-abiding citizen cannot be expected to violate such an order (para 21). Relief under s.54 was therefore available. The Court twice described the facts as peculiar (paras 25, 26 read with para 21), and expressly noted that such a contractual right can be surrendered or neutralised by a later contract or by conduct, so that no transfer results - though that was not this case (para 21).
TaxSphere, “Sanjeev Lal v CIT”, https://taxnotice.vittsphere.com/caselaw/case/sanjeev-lal-v-cit-agreement-to-sell/ (validity last checked 2026-08-25)
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