Development agreement transfer and staggered consideration: section 54EC timing and section 54B relief applied on the facts.

A development agreement that handed over possession to a builder was treated as a transfer under section 2(47)(v), so capital gains arose in that year, and the consideration in the correction deed was adopted for computation. Exemption under section 54EC was allowed where investments in specified bonds were made within six months of receipt of the corresponding sale consideration, even though that receipt followed the date of transfer. Deduction under section 54B could not be denied merely because the assessees had entered into a real estate joint venture; absent evidence that the land was not acquired or used for agricultural purposes, the claim was upheld.

---

---

Issues: (i) whether the joint venture development agreement dated 12.7.2005 constituted a transfer of the land under section 2(47)(v) so as to attract capital gains in that year and whether the enhanced consideration recorded in the correction deed was to be adopted for computation; (ii) whether exemption under section 54EC was available for investments in specified bonds made after the date of transfer but within six months of receipt of sale consideration; and (iii) whether deduction under section 54B could be denied merely because the assessees had entered into a real estate joint venture.

Issue (i): Whether the joint venture development agreement dated 12.7.2005 constituted a transfer of the land under section 2(47)(v) so as to attract capital gains in that year and whether the enhanced consideration recorded in the correction deed was to be adopted for computation.

Analysis: The agreement contemplated handing over possession of the land to the builder for development and satisfied the requirements of section 2(47)(v) as explained in the binding precedent on part performance. The fact that the arrangement was styled as a joint venture did not prevent the transaction from amounting to a transfer for capital gains purposes. The correction deed increasing the consideration from Rs. 2.50 crore to Rs. 4.90 crore was also taken into account for computation, as the authorities below had done.

Conclusion: The transfer was held to have taken place in the relevant year on the basis of the agreement dated 12.7.2005, and the enhanced consideration was upheld for computation. This issue was decided against the assessee.

Issue (ii): Whether exemption under section 54EC was available for investments in specified bonds made after the date of transfer but within six months of receipt of sale consideration.

Analysis: Although section 54EC speaks of investment within six months from the date of transfer, the consideration was received by the assessee in stages after the date of transfer. The investments of Rs. 12.50 lakh and Rs. 37.50 lakh were made within six months of receipt of the corresponding consideration. The interpretation adopted by the Board in Circular No. 791, read with the statutory object of the exemption provision, supported reckoning the time limit in a manner that did not defeat the relief where receipt of consideration itself occurred later.

Conclusion: Exemption under section 54EC was allowed for the impugned investments of Rs. 50 lakh. This issue was decided in favour of the assessee.

Issue (iii): Whether deduction under section 54B could be denied merely because the assessees had entered into a real estate joint venture.

Analysis: The denial was based only on a presumption that a person engaged in real estate business would not use newly purchased land for agriculture. No material was brought on record to show that the land was not purchased for agricultural use or was actually used otherwise. In the absence of supporting evidence, the presumption could not displace the claim under section 54B.

Conclusion: The direction to allow the claim under section 54B was upheld and the Revenue's appeals failed on this issue. This issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the section 54EC and section 54B issues, while the capital gains timing and valuation findings were sustained; the assessee's appeals were partly allowed and the Revenue's appeals were dismissed.

Ratio Decidendi: For capital gains purposes, possession handed over under a development arrangement may constitute transfer under section 2(47)(v), but exemption provisions such as section 54EC must be applied in a manner consistent with their object where receipt of consideration is staggered, and deductions under section 54B cannot be denied on mere surmise without evidence of non-agricultural use.

---