Development agreement conversion to stock-in-trade is a transfer; valuation must follow the legally relevant date, not the form.

An express development arrangement converted the assessee's share in the property into stock-in-trade from the date of the agreement, and that conversion was treated as a transfer under section 2(47)(iv), with tax consequences governed by section 45(2) on fair market value at the date of conversion. Mere non-entry in the books did not change that legal effect, while clauses (v) and (vi) were not triggered until the builder obtained effective rights under the irrevocable power of attorney executed later. The computation of consideration could not rest solely on the statutory form; fair market value and the value of the constructed area had to be determined on evidence, so the valuation issue was remitted for fresh determination.

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Issues: (i) Whether the assessee's development arrangement resulted in conversion of the capital asset into stock-in-trade on the date of the agreement and whether the later transfer of the stock-in-trade to the builder attracted tax in the year under appeal; (ii) Whether the transfer consideration shown in the statutory form could be substituted or discounted for computing capital gains and related profits.

Issue (i): Whether the assessee's development arrangement resulted in conversion of the capital asset into stock-in-trade on the date of the agreement and whether the later transfer of the stock-in-trade to the builder attracted tax in the year under appeal.

Analysis: The agreement showed an express conversion of the assessee's share in the property into stock-in-trade for the business of development and construction. The appointment of the architect and builder, and the contractual framework, supported the conclusion that the asset was treated as stock-in-trade from the date of the agreement. Mere non-entry in the books did not alter the legal effect. Such conversion was treated as a transfer within the meaning of section 2(47)(iv), with tax consequences governed by section 45(2) at the fair market value on the date of conversion. The later stage of the project showed that provisional possession, approvals, and allotments did not amount to a transfer under clauses (v) or (vi) until the builder obtained effective rights under the irrevocable authority executed in 2003.

Conclusion: The capital asset stood converted into stock-in-trade on the date of the agreement, and the stock-in-trade was transferred only on execution of the irrevocable power of attorney in 2003. The taxability on this issue was upheld against the assessee for the year under appeal.

Issue (ii): Whether the transfer consideration shown in the statutory form could be substituted or discounted for computing capital gains and related profits.

Analysis: The amount mentioned in the statutory form was not treated as decisive for computation because the relevant transfer and conversion values had to be determined on the factual and legal position as it stood at the material times. The Assessing Officer was required to determine the fair market value of the property on conversion and also the value of the constructed area after giving the assessee an opportunity to adduce evidence. The computation could not rest merely on the apparent consideration stated in the form.

Conclusion: The computation issue was remitted for fresh determination of fair market value and related figures, with opportunity to both sides to lead evidence; this issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only to the limited extent of reopening the valuation exercise, while the substantive finding on the timing and character of transfer was sustained.

Ratio Decidendi: In a development arrangement, an express conversion of a capital asset into stock-in-trade constitutes a transfer under section 2(47)(iv), while clauses (v) and (vi) apply only when the transferee acquires effective possession or enjoyment rights; valuation for tax purposes must be made on the legally relevant date rather than merely on the amount stated in a statutory disclosure form.

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