Capital gains on development agreement arise when possession and substantial consideration trigger transfer by part performance.

Transfer of land under a development agreement was treated as a taxable transfer in the year possession was handed over and substantial consideration was received. On the admitted facts, the arrangement satisfied section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882, so the transfer by part performance was complete for capital gains purposes in that year. The later execution of sale deeds, or the assessee's accounting treatment in subsequent years, did not defer taxability once those statutory conditions were met. The capital gains on the entire property were therefore chargeable in the relevant year, and deletion of the addition was unsustainable.

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Issues: Whether the transfer of land under the development agreement attracted capital gains tax in the year in which possession was handed over and substantial consideration was received.

Analysis: The land price was fixed under the development agreement, substantial consideration had been received, and possession was handed over to the developer in the relevant previous year. On these admitted facts, the transaction satisfied the requirements of section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882. The subsequent execution of sale deeds or the assessee's treatment of receipts in later years did not postpone the year of taxability once the conditions for transfer by part performance were met.

Conclusion: The capital gains on the entire property were chargeable in the relevant year and the deletion of the addition was unsustainable.

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