Deemed transfer in development-cum-sale arrangements arises when effective possession and control pass under a power of attorney.

Capital gains under section 45 accrue in the previous year when a transfer occurs, and section 2(47)(v) treats a transaction as a deemed transfer when the transferee is placed in effective possession and general control in part performance of the contract. On the facts, the agreement and supplemental arrangement, read together, showed that execution of the irrevocable power of attorney, together with the final licence and substantial receipt of consideration, was the decisive step conferring such control on the developer. The deemed transfer therefore arose in financial year 2006-07, and the capital gains were taxable in assessment year 2007-08.

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Issues: Whether capital gains arising from the development-cum-sale arrangement accrued in the financial year 2006-07 on execution of the irrevocable power of attorney and grant of permissions, or only on receipt of the entire consideration and completion of construction.

Analysis: Section 45 fastens tax on capital gains in the previous year in which transfer takes place, and section 2(47)(v) enlarges the concept of transfer to cover a transaction allowing possession of immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. The relevant inquiry is not whether full consideration has been received or whether exclusive possession has passed, but whether the transferee has been conferred effective possession and general control in part performance of the contract. The agreement and the supplemental arrangement, read together, showed that the decisive step was the execution of the irrevocable power of attorney, which authorized the developer to enter upon the land, manage and control it, and undertake the development work. That transaction, coupled with the grant of the final licence and substantial receipt of consideration during the year, constituted the deemed transfer.

Conclusion: The transfer within section 2(47)(v) occurred on execution of the irrevocable power of attorney in financial year 2006-07, so the capital gains arose in assessment year 2007-08. The answer is in favour of the Revenue.

Ratio Decidendi: Where an agreement does not provide for immediate transfer of possession, deemed transfer under section 2(47)(v) arises when the transferee is placed in effective possession and general control in part performance of the contract, and not when full consideration is ultimately received.

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