ITAT Allows Section 54 Exemption on Unregistered Property Purchase with Possession

The assessee, Anju Madhan, along with her husband, owned a property in Greater Kailash, New Delhi, which was developed and sold during AY 2016–17 for Rs. 8.40 crore. She claimed exemption under Section 54 on long-term capital gains amounting to Rs. 6.68 crore by investing in another residential property.

The Assessing Officer disallowed the exemption on two grounds: first, the agreement to purchase the new property was not registered; and second, the seller (assessee’s son) allegedly lacked clear title due to pending litigation. However, before the CIT(A), the assessee demonstrated that substantial payment had been made, possession was taken, and the seller had obtained valid title through a conveyance deed dated 16.10.2012. The CIT(A) accepted these submissions and allowed the exemption.

Main Issue: Whether exemption under Section 54 can be allowed where the new residential property is acquired through an unregistered agreement and the vendor’s title is disputed.

Tribunal’s Decision: The ITAT upheld the order of the CIT(A) and dismissed the Revenue’s appeal, holding that for the purpose of Section 54, the term “purchase” must be interpreted pragmatically and not confined to execution of a registered conveyance deed. The Tribunal observed that the assessee had made substantial payment and taken possession of the property, which fulfilled the requirement of “purchase” under Section 54. It further held that such transactions are protected under Section 53A of the Transfer of Property Act, even if the agreement is unregistered. On the issue of title, the Tribunal agreed that the vendor had valid title through a prior registered conveyance deed, and mere pendency of litigation without any restraining order does not invalidate the transaction. The objection regarding Rule 46A was also rejected.

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