Development agreement capital gains depend on section 53A conditions, readiness to perform, and actual accrual of consideration.

A development agreement-cum-GPA may trigger capital gains only if the transaction satisfies the requirements of section 53A of the Transfer of Property Act, including part-performance possession and the transferee's readiness and willingness to perform; mere execution of the agreement is insufficient where consideration has not accrued and the project has not progressed. Land ceases to retain agricultural character where conversion to non-agricultural use is approved before registration, affecting its treatment as a capital asset. An arrangement kept at the stage of development, without an actual transfer in the relevant year, is also not taxed as adventure in the nature of trade.

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Issues: (i) Whether the land given under the development agreement retained the character of agricultural land and was outside the definition of capital asset; (ii) Whether the development agreement-cum-GPA amounted to a transfer attracting capital gains in the assessment year under consideration; (iii) Whether the transaction could be assessed as adventure in the nature of trade.

Issue (i): Whether the land given under the development agreement retained the character of agricultural land and was outside the definition of capital asset.

Analysis: The relevant enquiry was the character of the land on the date of the transaction and the effect of the conversion approval and registration. The record showed that conversion from agricultural to non-agricultural use had been approved by the competent authority before registration of the development agreement-cum-GPA, and the agreement was registered only after such conversion. On those facts, the land could not be treated as agricultural land for the purposes of the exemption from the definition of capital asset.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the development agreement-cum-GPA amounted to a transfer attracting capital gains in the assessment year under consideration.

Analysis: For section 2(47)(v) to apply, the transaction must answer the requirements of section 53A of the Transfer of Property Act, 1882, including a contract for consideration, possession in part performance, and the transferee's readiness and willingness to perform. The Tribunal held that mere execution of the development agreement did not by itself establish a transfer in the relevant year, because the project had not progressed, no consideration had accrued or been received, the approval for building plans came later, and the transferee's willingness and actual performance in the year were not shown. In these circumstances, the deemed transfer provision could not be invoked for the assessment year in question.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the transaction could be assessed as adventure in the nature of trade.

Analysis: The assessee had not sold the undivided share in the land during the relevant year, and the arrangement remained one of development rather than an outright commercial sale. In the absence of a transfer of the asset in the relevant year, the receipt could not be taxed as business income on the footing of adventure in the nature of trade.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The addition was not sustainable for the assessment year under appeal, though the Tribunal left open the possibility of examining taxability in the appropriate year when consideration actually accrued or transfer was otherwise completed.

Ratio Decidendi: A development agreement attracts capital gains under section 2(47)(v) only when the conditions of section 53A of the Transfer of Property Act, 1882 are satisfied, including the transferee's readiness and willingness to perform and actual accrual of consideration in the relevant year.

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