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Sanjeev Lal v. Commissioner of Income Tax

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 5899-5900 of 2014)Decided 1 Jul 2014
Civil Appeal Nos. 5899-5900 of 2014
Justice Anil R. Dave · Justice Shiva Kirti Singh

Background

The taxpayers agreed to sell an inherited residential house on 27 December 2002 and received Rs. 15 lakh as earnest money. They bought another home in April 2003, but litigation over the inheritance and a court injunction delayed the sale deed until September 2004. Tax authorities and the High Court refused the Section 54 capital gains exemption because the replacement home had been bought more than a year before the registered sale.

Decision Breakdown

The Supreme Court allowed the appeals and directed reassessment for the assessment year 2005-2006. In the particular circumstances, the agreement to sell created enforceable rights for the buyer and extinguished some of the sellers' rights, bringing it within the Income Tax Act's definition of transfer. The sellers had also been legally prevented from completing the sale earlier by the injunction. The December 2002 agreement could therefore be used in applying Section 54, making the April 2003 purchase timely. The exemption remained subject to fulfilment of the other statutory conditions.

Lesson Learnt

Keep the sale agreement, payment records and any court orders that delay a property sale. For this tax exemption, the Court recognised the earlier agreement on these particular facts; it did not hold that every sale agreement transfers legal ownership.

Official source (sci.gov.in)View Judgment (PDF)

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