Development agreement as transfer for capital gains where developer gets effective control and statutory possession under section 2(47)(v)

Reassessment under sections 147 and 148 was supported by recorded reasons, approval and written disposal of objections, so the reopening was sustained. A joint development agreement was treated as a transfer for capital gains purposes where it gave the developer effective control, development rights and possession in the statutory sense under section 2(47)(v) read with section 53A of the Transfer of Property Act; the original agreement date was taken as the transfer date and capital gains were assessed in the relevant year. Interest under section 234B was described as consequential and mandatory, with recomputation directed.

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Issues: (i) Whether the reassessment proceedings under section 147 and the notice under section 148 were validly initiated and sustained. (ii) Whether transfer of the assessee's property under the joint development agreement dated 30.06.1994 attracted capital gains tax in the assessment year 1995-96 under section 2(47)(v). (iii) Whether interest under section 234B was chargeable.

Issue (i): Whether the reassessment proceedings under section 147 and the notice under section 148 were validly initiated and sustained.

Analysis: The Assessing Officer had recorded reasons, relied on the development agreement and related material, obtained the requisite sanction, and disposed of the assessee's objections in writing. The record showed application of mind to material suggesting escapement of income. The notice under section 148 was also issued after the prescribed approval, and the objections to validity were dealt with in accordance with the statutory scheme.

Conclusion: The reassessment proceedings and the notice under section 148 were held valid, against the assessee.

Issue (ii): Whether transfer of the assessee's property under the joint development agreement dated 30.06.1994 attracted capital gains tax in the assessment year 1995-96 under section 2(47)(v).

Analysis: The agreement conferred extensive rights on the developer, including entry, development control, execution of construction-related acts, and authority over undivided interest in the property. The assessee received consideration in instalments, the project was acted upon, and the later supplementary arrangement and 2003 agreement were treated as continuations of the original arrangement. Applying the principle that a transaction giving the transferee effective control and possession in the sense recognised by section 2(47)(v), read with section 53A of the Transfer of Property Act, amounts to transfer, the date of the original agreement was taken as the relevant date of transfer.

Conclusion: The transfer was held to have taken place in the previous year relevant to assessment year 1995-96, and the capital gains were rightly brought to tax, against the assessee.

Issue (iii): Whether interest under section 234B was chargeable.

Analysis: Interest under section 234B is consequential and mandatory, and its computation depends on the final tax effect.

Conclusion: Interest under section 234B was held chargeable, with recomputation directed while giving effect to the order.

Final Conclusion: The assessee's appeal failed in substance, the reopening was upheld, the capital gains assessment for assessment year 1995-96 was sustained, and the ancillary interest issue was left to be recomputed consequentially.

Ratio Decidendi: In a development agreement, if the contract as a whole confers effective control and possession in the statutory sense on the developer, the transaction constitutes transfer for capital gains purposes from the date of the agreement itself under section 2(47)(v), read with section 53A of the Transfer of Property Act, 1882.

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