Development agreement capital gains depend on deemed transfer and accrual of consideration, not mere execution of the agreement.

Capital gains from a development agreement are not taxable merely on execution if the arrangement does not amount to a deemed transfer under Section 2(47)(v) of the Income-tax Act read with Section 53A of the Transfer of Property Act. On the facts described, the developer had only permissive possession, no construction approval had been obtained, no developed area had been handed over, and the landowner's consideration in the form of a share in the constructed area had not accrued. A refundable deposit by itself was insufficient to establish transfer or receipt of consideration for capital gains purposes, so the addition was deleted.

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Issues: Whether capital gains arising from a development agreement were taxable in the assessment year in which the agreement was executed, or only in the year when the developed area due to the landowner was actually handed over.

Analysis: The agreement was treated as a development agreement-cum-general power of attorney under which the developer was given only permissive possession and the consideration to the owner was the allotted share in the developed area. The decisive factor was whether the arrangement satisfied the conditions of part performance so as to attract deemed transfer under Section 2(47)(v) of the Income-tax Act, read with Section 53A of the Transfer of Property Act. On the facts found, the developer had not undertaken the development work, no construction approval had been obtained, no developed area had been delivered, and the consideration in the form of constructed share had not accrued to the assessee. Mere execution of the agreement and receipt of a refundable deposit were held insufficient to constitute taxable transfer or receipt of consideration for capital gains purposes.

Conclusion: Capital gains were not taxable in the year of execution of the development agreement; the addition was deleted and the issue was decided in favour of the assessee.

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