SH. SANJEEV LAL ETC.ETC.versusCOMMISSIONER OF INCOME TAX, CHANDIGARH & ANR.

                    [2014] 8 S.C.R. 795


               SH. SANJEEV LAL ETC.ETC.                         A
                              V.
  COMMISSIONER OF INCOME TAX, CHANDIGARH &
                       ANR.
       (Civil Appeal Nos.5899-5900 of 2014)
                                                                 B
                     - JULY 01, 2014
     [ANIL R. DAVE AND SHIVA KIRTI SINGH, JJ.]

      Income Tax Act, 1961: s. 54 - Long term capital gain -
Assessee-appellant entered into an agreement to sell his C
residential house on 27. 12. 2002 and on 30. 04. 2003
purchased another house but could not complete sale
transaction of his residential house due to a suit filed against
him restraining him from dealing with the sale of said house
- When the suit was dismissed and stay was vacated, he D
executed sale deed and got it registered on 24. 09. 2004 -
Entitlement of appellant to avail benefit of s. 54 - Held: Due
to interim order, appellant was restrained from dealing with
 the sale of his residential house - In the circumstance, for a
justifiable reasons which was not within the control of E
appellant, he could not execute the sale deed and sale deed
 could be registered only on 24.9.2004 - In view of definition
 of term 'transfer' uls.2(47) of the Act, some right in respect of
 capital asset had been transfe"ed in favour of vendee and
 some right which appellant had in respect·of the capital asset F
had been extinguished because after execution of agreement
 to sell it was not open to appellant to sell property to someone
 else - s. 54 gives relief to a person who has transferred his
 residential house and is purchasing another house either
 before one year of transfer or even two years after the transfer G
 - The intention of legislature is to give relief in the matter of
payment of tax on long term capital. gain - Sale deed could
 not be executed as the appellant could not have violated the
 order of the court - Therefore, in view of peculiar facts of the
                             795                                 H
    796      SUPREME COURT REPORIS                  [2014] 8 S.C.R.

A   case, appellant is entitled to benefit u/s. 54 of the Act.

         Interpretation of statutes: Taxing statutes - Harmonious
    construction - Held: While considering a claim for exemption ;
    from tax, a purposive interpretation of the provisions of the ·
    Income Tax Act should be given - Harmonious construction
8
    of provisions which subserve the object and purpose should.
    also be made while construing any of the provisions of the
    Act - Income Tax Act, 1961.

       Words and phrases: Transfer - Meaning of, in the context
C of s.2(47) of the Income Tax Act, 1961.

         The appellant entered into an agreement to sell his
    residential house on 27th December, 2002 for -a
    consideration of Rs. 1.32 crores. The appellant received
0   Rs. 15 lakhs by way of earnest money. On 30th April,
    2003, the appellant purchased another house. Meanwhile,
    dispute arose as to the residential house sold by
    appellant and in a suit the court restrained the appellant
    from dealing with the said house. Due to stay order, the
E   appellant could not execute the s.ale deed till the suit
    came to be dismissed. Thereafter, the appellant executed
    the sale de'ed in 2004 and the same was registered on
    24th September, 2004. The Income Tax Authorities made
    the appellant liable to pay income tax on the capital gains.
    under Section 54 of the Income Tax Act for the reason that
F   the transfer of the original asset was effected on 24th
    September, 2004 whereas the appellants had purchased
    another residential house on 30th April, 2003 i.e. more '
    than one year prior to the purchase of the new asset. The •
    Assessing Officer did not grant benefit under Section 54
G   of the Act. The Commissioner, the Tribunal and the High
    Court all upheld the view of the assessing officer. Hence
    the appeal.

          Allowing the appeals, the Court
H
  SH. SANJEEV LAL v. COMMISSIONER OF INCOME 797
               TAX, CHANDIGARH
     HELD: 1. A plain reading of Section 54 of the Income        A
Tax Act shows that so as to avail the benefit under
  Section 54 of the Act, one must purchase a residential
  house/new asset within one year prior or two years after
  the date on which transfer of the .residential house in
  respect of which the long term capjtat gain had arisen,        B
  has taken place. In the instant .Case, ·the following three
  dates are not in dispute. The reside.ntial house was
  transferred by the appellants and the sale deed had been
  registered on 24th Septem~' ~004. Ttte sale deed had
  been executed in pursuance of an agreement to sell             c
, which had been executed 611 27th December, 2002 and
. out of the total consideration of Rs.1.32 crores, Rs. 15
' lakhs had been received by the appellants by way of
  earnest money when the agreement to sell had been
  executed and a new residential house/new asset had
                                                                 0
  been purchased by the appellants on 30th April, 2003. It
  is also not disputed that there was a litigation wherein the
  appellants had been restrained from dealing with the
  house in question by a judicial order and the said judicial
  order had been vacated only in the month of May, 2004
  and therefore, the sale deed could not be executed before      E
  the said order was vacated though the agreement to sell
  had been executed on 27th September, 2002. [Paras 17
  and 18] [807-H; 808-A-E]

     2. If one considers the date on which itwas decided         F
 to sell the property, i.e. 27th December, 2002 as the date
 of transfer or sale, it cannot be disputed that the
 appellants would be entitled to the benefit under the
 provisions of Section 54 of the Act because long term
 capital gain earned by the appellants had been used for         G
 purchase of a new asset/residential house on 30th April,
 2003 i.e. well within one year from the date of transfer of
 the house which resulted into long term capital gain.
 [Para 19] [808-E]
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    798    SUPREME COURT REPORTS                [2014] 8 S.C.R.


A      3. The question 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
B 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
c 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
0
  an agreement to sell is entered into. In normal
  circumstances, the said 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
E the property is extinguished by execution of an
  agreement to sell, the capital asset can be deemed to
  have been transferred. [Para 20] [808-H; 809-A-D]

       4. In the light of definition of "transfer" as defined
F under Section 2(47) of the Act, it· is clear that when any
  right in respect of any capital asset is extinguished and
  that right is transferred to someone, it would amount to
  transfer of a capital asset. In the instant case, an
  agreement to sell in respect of a capital asset had been
G executed on 27th December, 2002 for transferring the
  residential house/original asset in question and a sum of
  Rs. 15 lakhs had been received by way of earnest money.
  However, the sale deed could not be executed because
  of pendency of the litigation because the validity of the
H
SH. SANJEEV LAL v. COMMISSIONER OF INCOME.. 799
             TAX, CHANDIGARH
Will under which the property had devolved upon the              A
appellants was challenged. By virtue of an interim order,
the appellants were restrained from dealing with 1he said
residential house and a law-abidi'ng citizen cannot be
expected to violate the direction of a court by executing
a sale deed in favour of a third party while being               B
restrai~ed from doing so. In the circumstances, for a
justifiable reason, which was not witliin the control of the
appellants, they could not execute the sale deed and the
sale deed had been registered only on 24th September,
2004, after the suit challenging the validity of the Will, had   c
been dismissed. In the light of the facts and in view of the
definition of the term "transfer", one can come to a
conclusion that some right in respect of the capital asset
in question had been transferred in favour of the vendee
and therefore, some right which the appellants had, in           0
respect of the capital asset in question, had been
extinguished because after execution of the agreement
to sell it was not open to the appellants to sell the
property to someone else in accordance with law. A right
in personam had been created in favour of the vendee,
                                                                 E
in whose favour the agreement to sell had been executed
and who had also paid Rs.15 lakhs by way of earnest
money. No doubt, such contr~ctual right can be
surrendered or neutralized by the parties through
subsequent contract or conduct leading to no transfer of
the property to the proposed vendee but that is not the          F
case at hand. [Para 21] [809-F-H; 810-A-F]

    5. In addition to the fact that the term "transfer" has
been defined under Section 2(47) of the Act, even if
looked at the provisions of Section 54 of the Act which          G
gives relief to a person who has transferred his one
residential house and is purchasing another residential
house either befo.re one year of the transfer or even two
years after the transfer, the intention of the Legislature is
to give him relief in the matter of payment of tax on the        H
    800    SUPREME COURT· REPORTS             [2014] 8 S.C.R.

A long term capital gain. If a person, who gets some excess
  amount upon transfer of his old residential premises and
  thereafter purchases or constructs a new premises within
  the time stipulated under Section 54 of the Act, the
  Legislature does not want him to be burdened with tax
B on the long term capital gain and therefore, relief has
  been given to him in respect of paying income tax on the
  long term capital gain. The intention of the Legislature or
  the purpose with which the said provision has been
  incorporated in the Act, is also very clear that the ·I
c assessee should be given some relief. Though it has
  been very often said that common sense is a stranger :
  and an incompatible partner to the Income Tax Act and it
  is also said that equity and tax are strangers to each
  other, still this Court has often observed that purposive
  interpretation should be given to the provisions of the
0
  Act. A purposive interpretation of the provisions of the
  Act should be given while considering a claim for
  exemption from tax. Harmonious construction of the
  provisions which subserve the object and purpose
  should also be made while construing any of the
E provisions of the Act and more particularly when one is
  concerned with exemption from payment of tax.
  Considering the aforestated observations and the
  principles with regard to the interpretation of Statute
  pertaining to the tax laws, one can very well interpret the
F provisions of Section 54 read with Section 2(47) of the
  Act, i.e. definition of "transfer", which would enable the
  appellants to get the benefit under Section 54 of the Act.
  [Para 22) [810-F-H; .811 ·A·E]

G       Oxford University Press v. Commissioner of Income Tax
    (2001) 3 sec 359: 2001 (1) SCR 574 • relied on.

       6. Consequences of execution of the agreement to
  sell are also very clear and they are to the effect that the
H appellants could not have sold the property to someone
SH. SANJEEV LAL ii. COMMISSIONER OF INCOME 801
             TAX, CHANDIGARH
else. In practical life, there are events when a person, even A
after executing an agreement to sell an immoveable
property in favour of one person, tries to sell the property
to another. Such an· act would not be in accordance with
law because once an agreement to sell is executed in
favour of one petson, the said person gets a right to get B
the property transferred in his favour by filing a suit for
specific performance and therefore, without hesitation it
can be said that some right, in respect of the said .
property, belonging to the appellants had been
extinguished and some right had been created in favour c
of the vendee/transferee, when the agreement to sell had
been executed. Thus, a right in respect of the capital
asset, viz. the property in question had been transferred
by the appellants in favour of the vendee/transferee on
27th December, 2002. The sale deed could not be
                                                              0
executed for the reason that the appellants had been
prevented from dealing with the residential house by an
order of a competent court, ~hich they could not have
violated. In view of the stated peculiar facts of the case
and looking at the definition of the term 'transfer" as E
defined under Section 2(47) of the Act, the appellants
were entitled to relief under Section 54 of the Act in
respect of the long term capital gain which they had
earned in pursuance of transfer of their residential
property and used for purchase of a new asset/residential
house. The impugned judgments are quashed and set F
aside and the Authorities are directed to re-assess the
income of the appellants for the Assessment Year 2005-
2006, after taking into account the fact that the appellants
were entitled to the relief, subject to fulfilment of other
conditions. [Paras 23 to 26] [811-F-H; 812-A-F]               G

                    Case Law Reference
    2001 (1) SCR. 574         Relied on         Para 22

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    802      SUPREME COURT REPORTS                [2014) 8 S.C.R.


A       CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
    5899-5900 of 2014.

        From the Judgment and Order dated 29.01.2013 in ITA
    No. 153/2012, ITA No. 154/2012 of the High Court of Punjab
B   & Haryana at Chandigarh.

          P. S. Patwalia, Ashok K. Mahajan for the Appellants.

         Arijit Prasad, Purnima Bhat Kak, Tanushree Sinha (for Anil
    Katiyar) for the Respondents.
c         The Judgment of the Court was delivered by

          ANIL R. DAVE, J. 1. Leave granted.

       2. As facts of both the appeals are similar, at the request
D of the learned counsel appearing for the parties, both the
  appeals had been heard together.

         3. Being aggrieved by the judgments delivered by the High
    Court of Punjab and Haryana in ITA Nos. 153 & 154 of 2012
    dated 29th January, 2013, these appeals have been preferred
E   by the assessees.

        4. The facts giviQg rise to the present litigation, in a
    nutshell, are as under:

F      A residential house, being House No. 267 situated in
  Sector 9-C, Chandigarh, was a self acquired property of .Shri
  Amrit Lal, who had executed a Will whereby life interest in the
  aforestated house had been given to his wife and upon death
  of his wife, the house was to be given in favour of two sons of
G his pre-deceased son -late Shri Moti Lal and his widow. One
  of the above stated grand children and the daughter-in-law of
  Shri Amrit Lal are the appellants in these appeals. Upon death
  of Shri Amrit Lal, possession of the house was given to his
  widow. His widow, Smt. Shakuntla Devi expired on 29th
  August, 1993. Upon death of Smt. Shakuntla Devi, as per the
H
 SH. SANJEEV LAL v. COMMISSIONER OF INCOME 803
      TAX, CHANDIGARH [ANIL R. DAVE, J.]
                                                                        11
Will, the ownership in respect of_ the housJ'Fr~in-q_1.1_1e•st..io_n_c_a..~   A
to t?e vested in the present appellants and _~lfter grandchftd
of iate Shri Amrit Lat. -- "'          ~· ,., •· ~ ~                  -,.·

       The appellants had decided to sell the hotJse and with that
  intention they had entered into an agreement to sell the house              8
 with Shri Sandeep Talwar on 27th December,. 2002 for a
  consideration of Rs. 1.32 crores. Out of the said amount~a sum
.of Rs.15 lakhs had been received by the appellants by way of
 'earnest money. As the appellants had decided to sell the
  house in question, they had also decided to purcbase another                C
  residential house bearing house No. 528 in Sector 8,
  Chandigarh-so that the sale pro.ceeds, including capital gain,
  can be used for purchase of the aforestated House No. 528.
  The said house was purchased on 3oth April, 2003 i.e. well
  within one year from the date on which the agreement to sell
  had been entered into by the appellants. -                                  D

      The validity of the Will had been questioned by Shri
Ranjeet Lal, who was another son of the deceased testator Shri
Amrit Lal, by filing a civil suit, wherein the trial court, by an
interim order had restrained the appellants from dealing with                 E
the house property. During the pendency of the suit, Shri
Ranjeet Lal expired on 2nd December, 2000 leaving behind
him no legal heirs•. The suit filed by him had been dismissed in
May, 2004 as there was no representation on his behalf iri the
suit.                                                                         F

     5. Due to the interim relief granted in the above stated suit,
the appellants could not exec1Jte the sale dee.d till the suit came
to be dismissed and the validity of the Will was upheld. Thus,
the .appellants executed the sale deed in 2004 and the same
was· registered on 24th September, 2004.                                      G

     6. Upon transfer of the house property, long term capital
gain had arisen, but as the appellants had purchased a new
residential house and. the amount of the capital gain had been
used for purchase of the said new asset, believing that the long              H
    804      SUPREME COURT REPORTS                  [2014) 8 S.C.R.


A   term capital gain was not chargeable to income tax as per the
    provisions of Section 54 of the Income Tax Act, 1991
    (hereinafter referred to as 'the Act'), the appellants did not
    disclose the said long term capital gain in their return of income
    filed for the Assess·ment Year 200"5-2006.
B
       7. In the assessment proceedings for the Assessment
  Year 2005-2006 under the Act, the Assessing Officer was of
  the vi~w that the appe!!ants were not entitled to any benefit under
  Section 54 of the Act for the reason that the' transfer of the ·
C original asset, i.e. the residential house, had been effected on
  24th Septem_ber, 2004 whereas the appellants had purchased
  another residential house on 3oth April, 2003 i.e. more than one
  year prior to the purchase of the new asset and therefore, the
  appellants were made liable to pay income tax on the capital
  gain under Section 45 of the Act.
D
       8. Relevant portion of Se~tion 54 of the Act reads as under:

          "54. PROFIT ON SALE OF PROPERTY USED FOR
          RESIDENCE.
E         (1) Subject to the provisions of sub-section (2), where in
          the case Qf an assessee being an individual or a Hindu
          undivided family, th~ capital gain arises from the transfer
          of a long-term capital asset, being buildings or lands
          appurtenant thereto, and being a residential house, the
F         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 ons> year before or two years after the date on
          which the transfer took place purchased, or has within a
G         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, it shall be dealt with in
          accordance with the following provisions of this section,
H         that is to say, -
  SH. SANJEEV LAL v. COMMISSIONER OF INCOME 805
       TAX, CHANDIGARH [ANIL R. DAVE, J.]
      (i) If the amount of the capital gain is greater than the cost    A
      of the. residential house so purchased or constructed
      (hereafter in this section referred to as the new asset), the
      difference between the amount of the capital gain and the
      cost of the new asset shall be charged under section 45
      as the income of the previous year; and for the purpose           s
      of computing in respect of the new asset any capital gain
      arising from its transfer within a period of three years of
      its purchase or construction, as the case may be, the cost
      shall be nil; or

      (ii} If the amount of the capital gain is equal to or less than   C
      the cost of the new asset, the capital gain shall not be
      charged under section 45; and for the _purpose of
      computing in respect of the new asset any capital gain
      arising· from its transfer within a period of three years of
      its purchase or construction, as the case may be, the cost        D
      shall be reduced by the amount of the capital gain."

        9. Upon perusal of Section 54(1} of the Act, it is very clear
  that reliefunder Section 54 of the Act in respect of the long term
  capital gain can be availed only if a residential house i.e. a new    E
  asset is purchased within one year before or within two years
  after the date on which the transfer of the residential house/
  original asset takes place. In the instant case, the residential
: house had been transferred by the appellants-assessees on
·24th September, 2004 whereas they had purchased another                F
.·house on 30th April, 2003. Thus, the new asset was purchased
· more than one year prior to the date on which the transfer in
  respect of the residential house had been effected.

      10. For the aforestated reasons, the Assessing Officer did
 not grant benefit under Section 54 of the Act and therefore, the       G
 assessrnent order had been challenged by the appellants
 before the Commissioner of Income Tax (Appeals}. The appeal,
 so far as it pertained to the benefit under Section 54 of the Act
 was concerned, had been dismissed and therefore, the
 appellants had approached the Income Tax Appellate Tribunal.           H •
    806     SUPR~ME COURT REPORTS                   (2014] 8 S.C.R.


A The Tribunal also upheld the orders passed by the
  Commissioner and therefore, the appellants had approached
  the High Court by filing appeals under Section 260 A of the Act,
  which were dismissed by virtue of the impugned judgments.
  Thus, the appellants are in appeal before this Court.
8
        11. The learned counsel appearing for the appellants had
  mainly submitted that the authorities below and the High Court
  had committed an error in interpretation of Section 54 of the
  Act. According to him, though the property in question had been
  apparently transferred on 24th September, 2004 and the new
C asset i.e. new residential house had been purchased on 30th
  April, 2003 i.e. more than one year prior to the date on which
  the property had bee'n sold, t.he authorities ought to have
  considered the date on which the agreement to sell had been
  effected by the appellants for transfer of the property in question
D as the date of transfer bf the house/original asset. The said
  agreement had been signed on 27th December, 2002 i.e. which
  was well within the period prescribed under Section 54 of the
  Act. If one considers 27th December, 2002 as the date on
  which the property had been transferred or that a right in the
E property had been transferred, the appellants would become
  entitled to the benefit under Section 54 of the Act.

        12. So as to substantiate his submissions, learned counsel
  for the appellants had submitted that the appellants wanted to
F transfer the property in question and therefore, they had entered
  into an agreement to sell on· 27th December, 2002, but
  unfortunately they could not execute the sale deed on account
  of the litigation which was pending in respect of the property in
  question and due to an order restraining the appellants from
  dealing with the property. In view of the order passed by the
G civil court, the appellants.could not execute the sale deed and
  the delay was only on account of a factor which was beyond
  the control of th'e appellants.

      13. According to the learnetl counsel appearing for the
H appellants, the date on which the.agreement to sell had been
 SH. SANJEEV    LAL v. COMMISSIONER OF INCOME 807
           -------
      TAX, CHANDIGARH [ANIL R. DAVE, J.]
executed ought to have been treated as the date of transfer.          A
He had referred to the provisions of Section 2(47) of the Act
which defines the term "transfer". The term "transfer" has been
given an inclusive definition and according to the said definition,
whenever there is an extinction of any right in respect of a
capital asset, such an extinction would mean transfer of the          B
property. He had, therefore, submitted that by virtue of the
agreement to sell, a right had been created in favour of the
buyer of the property and certain right in respect of the
residential house, which the appellants had, had been
extinguished and therefore, 27th December, 2002 ought to              c
have been considered as the date of transfer.

    14,., The learned counsel had also relied upon certain
juqgments delivered by different High Courts to support his
submissions.
                                                                      D
     15. On the other hand, the learned counsel appearing for
the Revenue Authorities had vehemently submitted that by mere
execution of an agreement to sell, right of the vendor/transferor
in respect of the property cannot be extinguished. According
to him, no sale of the property in question had been effected,        E
when the agreement to sell had been executed on 27th
December, 2002. According to him, the appellants had sold the
original asset on 24th September, 2004 and had purchased a
new house/new asset on 30th April, 2003 i.e. one year before
sale of the original asset and ,therefore, the benefit under          F
Section 54 of the Act could not have been availed by the
appellants and therefore, the Revenue Authorities as well as
the High Court were absolutely correct by not granting the benefit
claimed by the appellants.

     16. We had heard the learned counsel at length and have          G
also considered the relevant provisions of the Act and the
judgments cited by the learned counsel.

     17. Upon plain reading of Section 54 of the Act, it is very
clear that so as to avail the benefit under Section 54 of the Act,    H
    808     SUPREME COURT REPORTS                     [2014] 8 S.C.R.


A   one must purchase a residential house/new asset within one
    year prior or two years after the date on which transfer of the
    residential house in respect of which the long term capital gain
    had arisen, has taken place.

         18. In the instant case, the following three dates are not in
8
    dispute. The residential house was transferred by the appellants
    and the sale deed had been registered on 24th September,
    2004. The sale deed had been executed in pursuance of an
    agreement tq sell which had been executed on 27th December,
C 2002 and out of the total consideration of Rs.1.32 crores, Rs.
    15 lakhs had been received by the appellants by way of earnest
    money when the agreement to sell had been executed and a
    new residential house/new asset had been purchased by the
    appellants on 30th April, 2003. It is also not in dispute that there
  · was a litigation wherein the Will of late Shri Amrit Lal had been
D challenged by his son and the appellants had been restrained
    from dealing with the house in question by a judicial order and
    the said judicial order had been vacated only in the month of
    May, 2004 and therefore, the sale deed could not be executed
    before the said order was vacated though the agreement to sell
E had been executed on 27th September, 2002.

         19. If one considers the date on which it was decided to
    sell the property, i.e. 27th December, 2002 as the date of
    transfer or sale, it cannot be disputed that the appellants would
F   be entitled to the benefit under the provisions of Section ?4 of
    the Act because long term capital gain earned by the appellants
    had been used for purchase of a new asset/residential house
    on 30th April, 2003 i.e. well within one year from the date of
    transfer of the house which resulted into long term capital gain.
G      20. The question to be cons.idered 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
H. respect of an immoveable property, a right in personall} is
 SH. SANJEEV LAL v. COMMISSIONER OF INCOME 809
      TAX, CHANDIGARH [ANIL R. DAVE, J.]

created in favour of the transferee/vendee. When such a right           A
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          B
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              c
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                  D
portion of Section 2(47), defining the word "transfer" is as under:

     "2(47) "transfer", in relation to a capital asset, includes,

     (i} ............... .
                                                                        E
     (ii) the extinguishment of any rights therein; or

                                    "
      21. Now in the light of definition of "transfer" as defined
under Section 2(47) of the Act, it is clear that when any right in      F
respect of any capital asset is extinguished and that right is
transferred to someone, it would amount to transfer of a capital
asset. In the light of the aforestated definition, let us look at the
facts of the present case where an agreement to sell in respect
of a capital asset had been executed on 27th December, 2002             G
for transferring the residential house/original asset in question
and a sum of Rs. 15 lakhs had been received by way of earnest
money. It is also not in dispute that the sale deed could not be
executed because of pendency of the litigation between Shri
Ranjeet Lal on one hand and the appellants on the other as Shri         H
    810      SUPREME COURT REPORTS                  [2014) 8 S.C.R.


A Ranjeet Lal had challenged the validity of the Will under which
  the property had devolvEtd upon the appellants. By virtue of an
  order passed in the suit filed by Shri Ranjeet Lal, the appellants
  were restrained from dealing with the said residential house
  and a law-abiding citizen cannot be expected to violate the
8 direction of a court by executing a sale deed in favour of a third
  party while being restrained from doing so. In the circumstances,
  forta justifiable reason, which was not within the control of the
  appellants, they could not execute the sale deed and the sale
  deed had been registered only on 24th September, 2004, after
C the suit filed by Shri Ranjeet Lal, challenging the validity of the
  Will, had been dismissed. In the light of the aforestated facts
  and in view of the definition of the term "transfer", one can come
  to a conclusion that-some right in respect of the capital asset
  in question had been transferred in favour of the vendee and
  therefore, some right which the appellants had, in respect of
D the capital asset in question, had been eXtinguished because
  after executi9n of the agreement to sell it was not open to the
  appellants to sell the property to someone else in accordance
  with law. A right in personam had been created in favour of the
  vendee, in,whoae favot1t the agreement to sell had been
E executed and who h,ad also paid Rs.15 lakhs by way of earnest
  money,. No dout)t, such contrac;tual right can be surrendered or
  neutralized by th~ parties.through subsequent contract or
  conduct leading to no transfer of. the property to the propose(f
  vendee butthafis not the case atharid.
F
        22. In addition tb the fact that the term "transfer" has be~n'
  define~ under::S~~ion 2(47). of the Act, even if looked at tf"!e
  provisions· of.Se~tion 54 .of the Act which gives relief to a
  person who has fransfetred his one residential house arid is.
G purchasing another residential house either before one year of:
  the transfer or even two years after the transfer, the intention of'
  the Legislature is to gi\te him relief in"the matter of payment of
  tax on the long term capit<;1I gain. If a person, who gets some
  excess amount uparftransfer of his old residential premises and
H thereafter purchases or constructs a riew premises within the
 SH. SANJEEV LAL v. COMMISSIONER OF INCOME 811
      TAX, CHANDIGARH [ANIL R. DAVE, J.]
time stipulated under Section 54 of the Act, the Legislature          A
does not want him to be burdened with tax on the long term
capital gain and therefore, relief has been given to him in
respect of paying income tax on the long term capital gain. The
intention of the legislature or the purpose with which the said
provision has been incorporated in the Act, is also very clear        B
that the assessee should be given some relief. Though it has
been very often said that common sense is a stranger and an
incompatible partner to the Income Tax Act and it is also said
that equity and tax are strangers to each other, still this Court
has often observed that purposive interpretation should be given      c
to the provisions of the Act. In the case of Oxford University
Press v. Commissioner of Income Tax [(2001) 3 SCC 359)
this Court has observed that a purposive interpretation o( the
provisions of the Act should be given while considering a claim
for exemption from tax. It has also been said that harmonious         0
construction of the provisions which subserve the object and
purpose should also be made while construing any of the
provisions of the Act and more particularly when one is
concerned with exemption from payment of tax. Considering
the aforestated observations and the principles with regard to
the interpretation of Statute pertaining to the tax laws, one can     E
very well interpret the provisions of Section 54 read with Section
2(47) of the Act, i.e. definition of "transfer", which would enable
the appellants to get the benefit under Section 54 of the Act.

       23. Consequences of execution of the agreement to sell         F
are also very clear and they are to the effect that the appellants
could hot have sold the property to someone else. In practical
life, there are events when a person, even after executing an
agreement to sell an immoveable property in favour of one
person, tries to sell the property to another. In our"opinion, such   G
an act would not be in accordance with law becam~e once an
agreement to sell is executed in favour of one pel'Sbn, the said
person g~t~ 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         H
    812      SUPREME COURT REPORTS                  [2014) 8 S.C.R.


A   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.

        24. Thus, a right in respect of the capital asset, viz. the
    property in question had been transferred by the appellants in
8
    favour of the v~ndee/transferee on 27th December, 2002. The
    sale deed could not be executed for the reason that the
    appellants had been prevented from dealing with the residential
    house by an order of a competent court, which they could not
    have violated.
c
     . 25. In view of the aforestated peculiar facts of the case and
  looking at the definition of the term 'transfer" as defined under
  Section 2(47) of the Act, we are of the view that the appellants
  were entitled to relief under Section 54 of the Act in respect of
D the long term capital gain which they had earned in pursuance
  of transfer of their residential property being House No. 267,
  Sector 9-C, situated in Chandigarh and used for purchase of
  a new asset/residential house.

E        26. The appeals are, therefore, allowed with no order as
    to costs·. The impugned judgments are quashed and set aside
    and the Authorities are directed to re-assess the income of the
    appellants for the Assessment Year 2005-2006, after taking into
    account the fact that the appellants were entitled to the relief,
F   subject to fulfilment of other conditions.

    Devika Gujral                                     Appeals allowed: