Transfer-coding values are used to indicate an encoding transformation that has been, can be, or may need to be applied to an entity-body in order to ensure "safe transport" through the network. This differs from a content coding in that the transfer-coding is a property of the message, not of the original entity.
It seems to suggest that in the case of chunked encoding for Transfer-Encoding is applied on top of the whole entity body encoded with a Content-Encoding. So the whole entity body has to be assembled first before decoding with the Content-Encoding.
Sorry for not updating earlier. I posted your (our ) doubt to the httpd users list.
You've already seen the answer. However, if I was working on an http implementation I would still be confused. I was going through the BNF and the "augmented BNF" that the http 1.1 spec is using. I'll be spending a bit more time trying figure out for sure how to derive the solution to this problem.