Capital gains on development agreements depend on effective transfer of possession and control, not mere substantial performance.

Section 2(47)(v) applies to a development agreement only where the contract, read as a whole, effectively transfers possession or complete control in part performance under section 53A of the Transfer of Property Act, 1882. Mere substantial compliance, partial permissions, or payment of a substantial part of consideration are not enough by themselves. On the stated facts, the agreement contemplated further stages and did not justify treating the transfer as complete in assessment year 1996-97 for capital gains purposes. The factual basis for the Tribunal's contrary view was also undermined by reliance on mistaken chronology and irrelevant material.

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Issues: (i) Whether, on the facts of the development agreement, the transfer of the immovable property was effected in the previous year relevant to assessment year 1996-97 for the purpose of capital gains under section 2(47)(v) of the Income-tax Act, 1961. (ii) Whether the Tribunal's finding that the transfer took place in assessment year 1996-97 was vitiated by reliance on irrelevant material and apparent factual errors.

Issue (i): Whether, on the facts of the development agreement, the transfer of the immovable property was effected in the previous year relevant to assessment year 1996-97 for the purpose of capital gains under section 2(47)(v) of the Income-tax Act, 1961.

Analysis: Section 2(47)(v) treats as transfer transactions allowing possession to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. In a development agreement, the relevant inquiry is whether the contract, read as a whole, shows passing of complete control and enjoyment in favour of the developer so as to attract the deeming provision. Mere substantial compliance, partial permissions, or payment of a substantial part of the consideration, without more, are not decisive by themselves. On the facts, the agreement contemplated further stages, including permissions and an irrevocable licence, and the material on record did not justify treating the transaction as completed in assessment year 1996-97 merely on the basis of substantial performance.

Conclusion: The issue is answered in the negative and in favour of the assessee. The transfer was not shown to have been effected in assessment year 1996-97 for capital gains purposes on the basis adopted by the Department.

Issue (ii): Whether the Tribunal's finding that the transfer took place in assessment year 1996-97 was vitiated by reliance on irrelevant material and apparent factual errors.

Analysis: The Tribunal relied on repeated and mistaken references to permissions and on an erroneous inference from a letter concerning water charges. There were apparent mistakes in the chronology, including reference to a wrong financial year, and some permissions relied upon were not shown in the record as stated. These errors undermined the factual foundation of the conclusion that possession and transfer had occurred in the relevant previous year.

Conclusion: The issue is answered in the affirmative and in favour of the assessee.

Final Conclusion: The appeal was allowed and the capital gains were not sustained for assessment year 1996-97 on the basis accepted by the Tribunal.

Ratio Decidendi: In a development agreement, section 2(47)(v) is attracted when the contract, viewed as a whole, effectively allows possession or complete control in part performance within section 53A of the Transfer of Property Act, 1882; substantial compliance or later acts alone do not displace the need to identify the legally relevant transfer event from the contract and record.

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