Capital gains on development agreement arise when possession and part-performance conditions are met, and taxability may shift to a later year.

A development agreement may trigger capital gains under section 2(47)(v) read with section 53A only when contractual rights, possession, and part-performance conditions are satisfied. On the stated facts, the Tribunal found that physical possession had not passed in the impugned year, so the gain was not taxable in that year, although the transfer test was met in the later year when possession was delivered. It also upheld the appellate direction to examine taxability in assessment year 2009-10, noting that the correct year of charge may be determined where the year under appeal is not the proper year of taxability.

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Issues: (i) Whether the development agreement, together with delivery of possession and subsequent acts of the parties, constituted a transfer attracting capital gains under section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act, and whether such gain was taxable in the impugned assessment year or in a later year; (ii) whether the appellate authority was justified in directing the Assessing Officer to examine the taxability of the capital gain in assessment year 2009-10.

Issue (i): Whether the development agreement constituted a transfer attracting capital gains in the impugned year and, if so, in which assessment year the taxability arose.

Analysis: The agreement was not a bare permission to enter the land; it contained detailed development specifications, payment of substantial consideration, and later conduct showing commencement of development and municipal approval. On the record, physical possession was not treated as having passed in the impugned year, because the developer obtained the relevant municipal permission only later and actual possession followed thereafter. The Tribunal also noted that the subsequent change in development arrangements did not establish that the original developer had abandoned the project. The transfer, therefore, was not taxable in the assessment year under appeal, though the transaction did answer the statutory test of transfer in the later year when possession was handed over.

Conclusion: The issue was answered against the assessee and in favour of the Revenue so far as the existence of transfer under section 2(47)(v) and section 53A was concerned, but capital gains were not taxable in the impugned assessment year.

Issue (ii): Whether the appellate authority was justified in directing the Assessing Officer to examine taxability of the capital gain in assessment year 2009-10.

Analysis: An appellate authority has co-terminus powers with the Assessing Officer and may determine the correct year of taxability where the facts show that the income does not arise in the year under appeal. The direction was limited to examination of the later year in accordance with law and subject to limitation provisions, leaving the assessee free to contest taxability in that year. No jurisdictional infirmity was shown in such direction.

Conclusion: The direction to examine taxability in assessment year 2009-10 was upheld.

Final Conclusion: Both appeals were rejected, and the determination that the capital gain, if taxable, arose in the later assessment year remained undisturbed.

Ratio Decidendi: In a development agreement, transfer for capital gains purposes arises when the contractual arrangement, possession, and part-performance conditions are satisfied, and an appellate authority may direct examination of taxability in the correct assessment year if the year under appeal is not the proper year of charge.

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