Staged development-rights transfers require capital gains computation on actual yearly consideration, not unreceived full contract value.
Capital gains under a development arrangement must be computed on the real consideration accrued and received for development rights or FSI transferred in each stage. Where the agreement permits reduced consideration for lower available FSI, and possession and payments occur only as FSI is sanctioned and utilised, the full stated consideration cannot be taxed as though all rights were transferred in one year. The staged transfer is treated as attracting section 2(47)(v) in the relevant years. Claims for legal fees and related expenditure require merits-based consideration where they were treated as not pressed despite written objections, and should be reconsidered by the first appellate authority.
Issues: (i) Whether capital gains could be computed on the full consideration of Rs. 1,13,25,000 mentioned in the development agreement, or only on the consideration actually received in respect of the FSI made available in stages; (ii) Whether the claim for deduction of certain expenditure required reconsideration by the first appellate authority.
Issue (i): Whether capital gains could be computed on the full consideration of Rs. 1,13,25,000 mentioned in the development agreement, or only on the consideration actually received in respect of the FSI made available in stages.
Analysis: The agreement itself contemplated reduction of consideration if the available FSI was less than the estimated figure, and the correspondence showed that possession and payment were received only in stages corresponding to the FSI actually sanctioned and utilised. The full stated consideration was not received, and the revenue could not tax a hypothetical amount on the footing that the entire plot and all development rights had been transferred in one year. On the assessee's own basis, the transaction answered to a staged transfer attracting section 2(47)(v) of the Income-tax Act, 1961 in the relevant years.
Conclusion: The issue was decided in favour of the assessee. Capital gains were to be worked out on the basis of the consideration actually received in each year, and not on Rs. 1,13,25,000 as a single deemed consideration.
Issue (ii): Whether the claim for deduction of certain expenditure required reconsideration by the first appellate authority.
Analysis: The record showed that the assessee's objections regarding legal fees and related expenditure had not been adjudicated on merits by the first appellate authority, which treated them as not pressed. The matter therefore required examination on the basis of the written submissions and the relevant claim of deduction.
Conclusion: The issue was remitted to the first appellate authority for fresh consideration.
Final Conclusion: The assessment was not sustained in full; the capital gains issue was decided for the assessee on a proportionate and staged basis, while the expenditure-related claim was sent back for reconsideration, resulting in a partly allowed appeal.
Ratio Decidendi: Where consideration and possession are actually received in stages under a development arrangement, capital gains must be computed on the basis of the real and accrued consideration for each stage, and not on a hypothetical full consideration that was neither received nor supported by the actual transfer effected.