Transfer under development agreement depends on actual possession; later handover triggered capital gains timing and section 54EC relief.

For section 2(47)(v), transfer in a development arrangement arises only when possession is given in part performance of a contract satisfying section 53A of the Transfer of Property Act; where possession is conditional and actual handover occurs later, the transfer date is the date of actual possession, making the later investment eligible for section 54EC relief. Alternate accommodation provided under a composite development arrangement was to be examined as part of the overall consideration and not as a separate receipt. The section 14A disallowance was sustained because the recorded basis for attributing expenditure to exempt income was found adequate, and the rule 8D adjustment was upheld.

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Issues: (i) Whether the date of transfer of the immovable property for purposes of capital gains was the date of the development agreement or the date on which physical possession was actually handed over, so as to determine eligibility for deduction under section 54EC; (ii) whether the cost of alternate accommodation provided by the developer formed part of the consideration for transfer; (iii) whether the disallowance under section 14A was sustainable.

Issue (i): Whether the date of transfer of the immovable property for purposes of capital gains was the date of the development agreement or the date on which physical possession was actually handed over, so as to determine eligibility for deduction under section 54EC.

Analysis: The development agreement contemplated handing over possession only after payment of the full consideration, and the possession described in the agreement was conditional. The actual physical possession was found to have been given later, and the transferee's part performance under section 53A of the Transfer of Property Act, 1882 was not attracted on the date of the agreement because the conditions attached to possession had not been fulfilled. In such circumstances, the transfer within section 2(47)(v) of the Income-tax Act, 1961 occurred only when actual possession was handed over.

Conclusion: The date of transfer was 01.03.2008, not 13.09.2007, and the investment made within six months thereafter qualified for deduction under section 54EC. This issue was decided in favour of the assessee.

Issue (ii): Whether the cost of alternate accommodation provided by the developer formed part of the consideration for transfer.

Analysis: The alternate accommodation was part of the composite development arrangement and was linked to the assessee's entitlement under the transaction. It could not be treated as an independent revenue receipt, and the taxability had to be examined as part of the overall consideration flowing from the development agreement.

Conclusion: The matter required re-working in the light of the composite transaction and was decided in favour of the assessee for statistical purposes.

Issue (iii): Whether the disallowance under section 14A was sustainable.

Analysis: The Assessing Officer had recorded the basis for attributing part of the expenditure to earning exempt income, and the requirements for invoking section 14A were treated as satisfied on the facts of the case. The adjustment under rule 8D was therefore upheld.

Conclusion: The disallowance under section 14A was sustained and this issue was decided against the assessee.

Final Conclusion: The appeal succeeded on the principal capital gains issue and failed on the section 14A issue, with the alternate-accommodation addition directed to be re-examined in the light of the composite development arrangement.

Ratio Decidendi: For section 2(47)(v) to apply in a development arrangement, possession must be allowed in part performance of a contract satisfying section 53A of the Transfer of Property Act, 1882; where possession is conditional and actual possession is handed over later, the transfer occurs only on the date of actual possession.

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