Deemed transfer and section 50C valuation rules govern capital gains under a development agreement and apartment sale dispute.

Capital gains on a development agreement arise only when the arrangement amounts to a deemed transfer under section 2(47)(v), read with section 53A of the Transfer of Property Act, 1882; on the stated facts, no development activity or effective performance by the developer was shown, so the agreement did not trigger tax in that year. For the later year, sale consideration for the sixth apartment had to be determined under section 50C through the prescribed valuation procedure where stamp value was disputed, including reference to the Valuation Officer if required; the claimed cost of improvement by rock cutting was rejected for want of supporting evidence.

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Issues: (i) Whether capital gains arising from the development agreement were assessable in the assessment year in which the agreement was executed, and whether section 2(47)(v) of the Income-tax Act, 1961 could be invoked on the facts. (ii) Whether the sale consideration for the sixth apartment sold during the later assessment year was correctly determined, and whether the procedure under section 50C of the Income-tax Act, 1961 was properly followed.

Issue (i): Whether capital gains arising from the development agreement were assessable in the assessment year in which the agreement was executed, and whether section 2(47)(v) of the Income-tax Act, 1961 could be invoked on the facts.

Analysis: The decisive question was whether the development arrangement amounted to a transfer in the relevant year so as to attract capital gains. The relevant legal test was whether the transferee had both performed and remained willing to perform its obligations so as to bring the transaction within the scope of section 53A of the Transfer of Property Act, 1882, and thereby within section 2(47)(v) of the Income-tax Act, 1961. On the facts, the record showed no development activity during the year, no effective performance of the agreement by the developer, and no basis to infer that the contractual obligations had been carried to the stage necessary for a deemed transfer.

Conclusion: Capital gains were not taxable in that assessment year, and the addition was rightly deleted.

Issue (ii): Whether the sale consideration for the sixth apartment sold during the later assessment year was correctly determined, and whether the procedure under section 50C of the Income-tax Act, 1961 was properly followed.

Analysis: The dispute required determination of the correct sale consideration and examination of the statutory machinery under section 50C. Since the assessee disputed adoption of the stamp valuation and the nature of the property sold, the matter could not be finally concluded without following the full procedure contemplated by section 50C, including reference to the Valuation Officer where the stamp value was challenged. The claim for cost of improvement by rock cutting was independently examined and found unsupported by evidence on the record.

Conclusion: The order on sale consideration was set aside and the matter was remanded for fresh determination in accordance with section 50C, while the disallowance of the claimed cost of improvement was sustained.

Final Conclusion: The Revenue's appeal for the earlier assessment year failed, while the cross-appeals for the later assessment year were remitted in part for fresh consideration and the claim for improvement expenditure was rejected.

Ratio Decidendi: In a development agreement, capital gains arise only when the transaction satisfies the conditions of deemed transfer under section 2(47)(v), read with section 53A of the Transfer of Property Act, 1882, and where stamp valuation is disputed, the full procedure under section 50C must be followed, including reference to the Valuation Officer when required.

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