Capital gains on development agreement upheld when effective transfer occurs, with flat valuation reduced and section 54F denied.

Reopening of assessment was upheld because the Assessing Officer had relevant material indicating possible escapement of income after the return was processed under section 143(1). On a joint development agreement, capital gains were held chargeable in the year of transfer since effective possession and control, together with an irrevocable power of attorney and transfer of development rights, fell within sections 2(47)(v) and 2(47)(vi); the taxable consideration included the full accruing consideration, including flats. However, the Revenue's higher valuation of the proposed flat was rejected and the flat was to be valued at Rs. 4,500 per sq. ft. Deduction under section 54F was denied because the statutory conditions were not met.

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Issues: (i) Whether reopening of assessment was valid on the basis of material available with the Assessing Officer. (ii) Whether, on the joint development agreement, capital gains were chargeable in the relevant year and whether the value of the proposed flat had to be taken at the rate adopted by the Revenue. (iii) Whether deduction under section 54F was allowable.

Issue (i): Whether reopening of assessment was valid on the basis of material available with the Assessing Officer.

Analysis: The original return had been processed under section 143(1) and the Assessing Officer subsequently received information regarding the transfer of land and the consideration received. The formation of belief at the stage of issue of notice under section 148 requires only relevant material capable of leading a reasonable person to believe that income has escaped assessment. The assessee's objection that reasons were not furnished was not accepted on the facts recorded by the appellate authority.

Conclusion: The reopening was held valid and the issue was decided against the assessee.

Issue (ii): Whether, on the joint development agreement, capital gains were chargeable in the relevant year and whether the value of the proposed flat had to be taken at the rate adopted by the Revenue.

Analysis: Capital gains under sections 45 and 48 arise on transfer, and transfer includes the transactions covered by section 2(47)(v) and section 2(47)(vi). Applying the statutory scheme and the principles governing part performance under section 53A of the Transfer of Property Act, 1882, the execution of the development arrangement and irrevocable power of attorney, coupled with the transfer of development rights and effective control over the property, constituted a transfer. The consideration was not confined to money actually received but extended to the entire consideration accruing under the arrangement, including the value of the flats. However, the valuation of the flat was aligned with the rate adopted in the connected group matter and the Revenue's higher rate was found unjustified.

Conclusion: The chargeability of capital gains was upheld against the assessee, but the flat was directed to be valued at Rs. 4,500 per sq. ft., giving partial relief to the assessee.

Issue (iii): Whether deduction under section 54F was allowable.

Analysis: The flat proposed under the development arrangement had not yet been constructed and the claimed investment in a new residential house had not been made within the statutory framework. The conditions for exemption under section 54F were not satisfied on the facts found.

Conclusion: Deduction under section 54F was denied and the issue was decided against the assessee.

Final Conclusion: The reopening was sustained, the capital-gains addition was substantially upheld, and only the valuation of the flat was reduced, resulting in a partly favourable outcome for the assessee.

Ratio Decidendi: In a development agreement, capital gains are chargeable in the year when the arrangement transfers effective possession or control within the meaning of section 2(47)(v) or section 2(47)(vi), and the full consideration accruing under the transfer, not merely the amount actually received, is taxable in that year.

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