Development agreement treated as transfer for capital gains; year of execution controls taxability, with section 54 relief denied.

A development agreement was treated as a transfer for capital gains purposes because it involved relinquishment of rights in land in return for constructed area, and the charge was linked to the year of execution rather than actual possession, making the gain taxable in assessment year 1998-99. The issue whether the assessee was taxable on the whole gain or only on a 25% share was remanded for fresh consideration on the ownership and family arrangement facts. The valuation adopted for the transfer consideration, based on constructed area and Sub-Registrar rates with adjustments for unfinished work, was upheld. Exemption under section 54 was denied because the property was regarded as commercial rather than residential.

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Issues: (i) Whether the development agreement dated 05.11.1997 amounted to a transfer attracting capital gains in assessment year 1998-99; (ii) whether the assessee was liable to be taxed on the entire capital gain or only on her 25% share; (iii) whether the consideration for transfer was to be computed on the basis adopted by the lower authorities; and (iv) whether exemption under section 54 was admissible.

Issue (i): Whether the development agreement dated 05.11.1997 amounted to a transfer attracting capital gains in assessment year 1998-99.

Analysis: The agreement was found to be a development agreement with no right of cancellation. The arrangement contemplated relinquishment of rights in land in return for specified constructed area, and the legal effect of such agreements was examined with reference to the deeming provision governing transfer. On that basis, the year of chargeability was held to be the year in which the agreement was executed, and the presence or absence of actual possession was treated as not decisive for such development agreements.

Conclusion: The development agreement resulted in a transfer for the purposes of capital gains, and the taxability arose in assessment year 1998-99.

Issue (ii): Whether the assessee was liable to be taxed on the entire capital gain or only on her 25% share.

Analysis: The assessability of the entire capital gain depended on the legal effect of the memorandum among the assessee and her children and on the ownership structure of the property. In view of the changed approach taken in the assessee's own case on the related income issue, the matter required fresh examination rather than final affirmation on the existing record.

Conclusion: The issue was remanded for fresh consideration and no final finding was recorded on the extent of the assessee's liability.

Issue (iii): Whether the consideration for transfer was to be computed on the basis adopted by the lower authorities.

Analysis: The consideration was linked to the constructed area receivable under the development agreement. The appellate computation adopted the constructed area determined on the record and applied Sub-Registrar rates to the constructed portion, with adjustments for unfinished construction. That computation was found to be reasonable and fair.

Conclusion: The valuation adopted by the appellate authority was upheld.

Issue (iv): Whether exemption under section 54 was admissible.

Analysis: Exemption under section 54 requires transfer of a residential property and investment in another residential house. The property in question had been let out for commercial purposes, and its character was therefore treated as commercial notwithstanding the residential approval for part of the building.

Conclusion: The claim for exemption under section 54 was rejected.

Final Conclusion: The appeal succeeded only to the limited extent of remand on the share-wise taxability issue, while the findings on transfer, year of taxability, valuation, and section 54 relief were sustained.

Ratio Decidendi: In a development agreement, the year of chargeability of capital gains is the year of execution of the contract, and the deemed-transfer provision applies to such arrangements according to the terms of the agreement as a whole.

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