Capital gains on leasehold transfer arose when possession and effective control passed under part performance, despite incomplete formal conveyance.

Transfer of leasehold rights under a memorandum of understanding may constitute a transfer for capital gains purposes where the arrangement, read as a whole, shows passing of possession or effective control in part performance, even though formal conveyance is incomplete. Applying section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act, the arrangement was treated as acted upon in the relevant year because consideration had been received, the property was later dealt with through reassignments, and the books reflected completion. The resulting long-term capital gains were therefore taxable in assessment year 2001-02, and the assessee's challenge to the year of taxability failed.

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Issues: Whether the transfer of leasehold rights under the memorandum of understanding dated 26 February 2001 constituted a transfer in the previous year relevant to assessment year 2001-02 so as to attract tax on long-term capital gains.

Analysis: The agreements provided for transfer of leasehold rights subject to approval from MIDC and payment of balance consideration, but the surrounding facts showed that the arrangement was acted upon in the year itself. The assessee had received consideration, the property was subsequently dealt with through reassignments to several third parties, and the entries in the books reflected the transaction as completed. Applying section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882, a transaction may amount to transfer where possession or control is effectively passed under a contract for consideration, even if title is not formally completed under general law.

Conclusion: The transfer took place in the year under appeal and the resulting long-term capital gains were taxable in assessment year 2001-02.

Final Conclusion: The assessee's challenge to the year of taxability failed, and the addition of long-term capital gains was sustained.

Ratio Decidendi: For purposes of section 2(47)(v) of the Income-tax Act, 1961, capital gains become taxable in the year of the contract where the arrangement, read as a whole, shows passing of possession or effective control in part performance, even if formal conveyance is incomplete under general law.

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