Capital gains on development agreements: possession and effective enjoyment can trigger transfer, including in-kind consideration.

A joint development agreement and irrevocable power of attorney were treated as a transfer of a capital asset because they gave the developer possession and effective enjoyment, along with extensive developmental and disposal rights, within section 2(47) of the Income-tax Act. Registration of the agreement and pending permissions did not prevent transfer treatment where the substance of the arrangement satisfied clauses (v) and (vi). Capital gains were therefore chargeable in the year of transfer under section 45, and computation under section 48 included the entire agreed consideration, including flats to be received later, not merely amounts actually received.

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Issues: Whether, on the terms of the joint development agreement and the irrevocable power of attorney, the transaction amounted to a transfer of a capital asset so as to attract capital gains tax in the relevant assessment year, and whether the whole of the consideration, including the value of flats to be received later, was chargeable to tax.

Analysis: Section 45 of the Income-tax Act, 1961 charges capital gains in the year in which the transfer takes place, and section 48 requires computation on the full value of the consideration received or accruing as a result of the transfer. The expression "transfer" in section 2(47) is by clauses (v) and (vi) to include transactions where possession is allowed in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and transactions enabling enjoyment of immovable property. On the facts, the agreement and the registered irrevocable power of attorney conferred extensive developmental, possessory, mortgage, sale, and control rights on the developer, showing that possession and effective enjoyment had been handed over for the purposes of section 2(47). The absence of registration of the development agreement and the fact that some consideration or permissions were pending did not prevent the transaction from being treated as a transfer. The consideration agreed to be received in kind, including flats, also formed part of the taxable consideration because capital gains are chargeable on the entire consideration accruing from the transfer, not merely amounts actually received.

Conclusion: The transaction was a transfer within section 2(47) and capital gains were chargeable on the entire consideration in the relevant year; the issue was decided against the assessee and in favour of the Revenue.

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