Collaboration arrangement transfer and capital gains valuation depend on actual possession, separate asset values, and genuine market-based cost.

In a redevelopment or collaboration arrangement, the transfer was confined to the builder's 44% share of land and the corresponding flats, and it was treated as occurring when possession and effective control were exchanged, not on the date of the agreement. For capital gains, the assessee's flats and the proportionate land had to be valued separately: the flats by reference to the builder's construction cost for the assessee's share, and the land by its 1-4-1981 value. Indexation was available only where the relevant asset qualified as a long-term capital asset. A frozen wealth-tax value under section 7(4) could not be mechanically adopted as market value for capital gains computation.

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Issues: (i) Whether, under the collaboration arrangement, the assessee had transferred the entire land or only the proportionate land corresponding to the builder's share, and when such transfer took place; (ii) how the cost of acquisition and indexed cost of acquisition of the flats and proportionate land were to be determined for capital gains purposes; and (iii) whether the wealth-tax value under section 7(4) could be treated as the market value for determining the 1-4-1981 cost.

Issue (i): Whether, under the collaboration arrangement, the assessee had transferred the entire land or only the proportionate land corresponding to the builder's share, and when such transfer took place.

Analysis: The arrangement did not amount to a transfer of the entire land on the date of the collaboration agreement. The clauses of the agreement showed that the assessee retained 56 per cent of the built-up area and that the builder was to receive 44 per cent of the land in exchange. The transfer of possession and effective transfer were linked to completion and handing over of the built-up flats, bringing the transaction within the concept of transfer under section 2(47) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882.

Conclusion: The transfer was only of 44 per cent of the land, along with the corresponding transfer of flats and their appurtenant rights, and it occurred when possession was exchanged in the relevant previous year, not on the date of the collaboration agreement.

Issue (ii): How the cost of acquisition and indexed cost of acquisition of the flats and proportionate land were to be determined for capital gains purposes.

Analysis: The value of the builder's share of land and the cost of construction of the assessee's 56 per cent built-up area were reciprocal elements of the same bargain. The cost of the flats therefore had to be taken as the cost of construction incurred by the builder for the assessee's share, while the land component had to be valued separately as on 1-4-1981. Since the property comprised distinct capital assets acquired at different times, indexation would apply only where the asset qualified as a long-term capital asset, and the period of holding of the built-up area had to be verified on facts.

Conclusion: The cost of acquisition had to be recomputed on the basis of the builder's construction cost for the flats and the 1-4-1981 value of the land, with indexation admissible only to the extent the asset was long-term.

Issue (iii): Whether the wealth-tax value under section 7(4) could be treated as the market value for determining the 1-4-1981 cost.

Analysis: The value declared under section 7(4) of the Wealth-tax Act was a frozen value for wealth-tax purposes and did not represent the market value on 1-4-1981. The authorities were therefore not justified in adopting that figure mechanically as the cost of acquisition. The valuation had to be made with reference to the conditions prevailing on the valuation date and on the basis of relevant material.

Conclusion: The wealth-tax frozen value could not be adopted as the market value for computing capital gains cost of acquisition.

Final Conclusion: The assessments were set aside to the extent necessary and the matter was remitted for fresh computation of capital gains on the correct basis of transfer, valuation, and indexation.

Ratio Decidendi: In a redevelopment or collaboration arrangement, the capital gains cost base must be determined by identifying the actual extent and timing of transfer under section 2(47), valuing the respective consideration and land component separately on the legally relevant date, and rejecting any frozen or unrelated value as a substitute for fair market value.

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