Development agreement and capital gains tax: mere licence to enter and build is not a transfer without section 53A possession

A development agreement will not trigger capital gains tax under section 45 read with section 2(47)(v) unless possession is given in the legally relevant sense and the conditions of section 53A of the Transfer of Property Act are satisfied. Where the owners retain title, may terminate on default, and the developer receives only a licence to enter the property and construct, the arrangement is not a transfer by part performance. On these facts, the transaction was not treated as a transfer in the relevant previous year and the consideration was not taxable as capital gains for the assessment year concerned.

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Issues: Whether the development agreement and supplementary agreement amounted to a transfer of the assessee's land so as to attract capital gains tax under section 45 of the Income-tax Act, 1961 read with section 2(47)(v) of that Act and section 53A of the Transfer of Property Act, 1882.

Analysis: The agreement provided that the developer would acquire development rights only on full payment of the last instalment, that the owners retained title and could terminate the arrangement on default, and that the developer was granted only a licence to enter the property and carry on construction. On the facts, the Revenue did not establish that possession of the land had been given to the developer in the sense required by section 2(47)(v), nor that the developer was willing to perform the contract as required for section 53A of the Transfer of Property Act, 1882. The arrangement was, in substance, a licence to develop and not a transfer of ownership or possession in part performance.

Conclusion: The impugned transaction did not constitute a transfer in the relevant previous year and the consideration receivable under the agreements was not taxable as capital gains for the assessment year in question.

Ratio Decidendi: A development agreement does not result in a taxable transfer under section 2(47)(v) unless possession is given in the legally relevant sense and the conditions of section 53A of the Transfer of Property Act, 1882 are satisfied; a mere licence to enter and develop is insufficient.

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