Notional capital gains on a development agreement failed where possession was not given and section 53A conditions were unmet.

Notional capital gains under a development agreement could not be taxed for the remaining land because the transaction did not satisfy the requirements of transfer by part performance under section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act. Only part of the plot had been sold, only part consideration had been received, and registry had been executed only to that extent. As possession of the entire land was not handed over and the mandatory conditions for section 53A were not met, the arrangement was not a completed transfer for the balance land. No capital gain therefore accrued on that portion, and the issue was decided in favour of the assessee.

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Issues: Whether notional capital gains could be brought to tax on the basis of a development agreement where possession of the entire land had not been given and the conditions for transfer under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882 were not satisfied.

Analysis: The assessee had sold only part of the plot and had received only part payment, with registry executed only to that extent. The impugned addition proceeded on the premise that the entire consideration had accrued under the development arrangement. The controlling test was whether the transaction amounted to a transfer in part performance so as to attract section 2(47)(v). In the absence of handing over possession of the entire land and without fulfilment of the mandatory conditions of section 53A, the transaction could not be treated as a completed transfer for the remaining land. Consequently, no capital gain could be said to have accrued in respect of that portion.

Conclusion: The notional capital gain was not exigible to tax on the facts found, and the issue was decided in favour of the assessee.

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