Agricultural land outside municipal limits and an ineffective development agreement did not trigger capital gains or deemed transfer.

Agricultural land situated outside the notified municipal limits is excluded from the definition of capital asset, so profit on its sale is not taxable as capital gains; on the facts, the land retained its agricultural character and no conversion for non-agricultural use or trading activity was shown, so it was also not assessable as business income. A development agreement amounts to a deemed transfer under section 2(47)(v) only if it falls within section 53A of the Transfer of Property Act, including the transferee's readiness and willingness to perform. As the developer had not taken effective steps and the arrangement had broken down, no transfer arose under the deeming provision.

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Issues: (i) Whether the gain arising from sale of the land was taxable as capital gains or business income, and whether the land was a capital asset. (ii) Whether the development agreement resulted in a transfer under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.

Issue (i): Whether the gain arising from sale of the land was taxable as capital gains or business income, and whether the land was a capital asset.

Analysis: The land was found to be agricultural in nature, situated beyond the relevant municipal limits, and not shown to have been converted into non-agricultural land. The finding of agricultural character was supported by the contemporaneous revenue records and the factual matrix accepted in the connected group matter. Since agricultural land outside the prescribed municipal area is excluded from the definition of capital asset, the profit from its sale could not be assessed as capital gains. The attempt to treat the transaction as an adventure in the nature of trade was also rejected because no trading activity or conversion of the land for commercial exploitation was established.

Conclusion: The gain from sale of the land was not taxable as capital gains or business income.

Issue (ii): Whether the development agreement resulted in a transfer under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.

Analysis: A deemed transfer under section 2(47)(v) arises only when the agreement is of the nature contemplated by section 53A, which requires not merely delivery of possession but also the transferee's willingness and readiness to perform its contractual obligations. On the facts, the developer had taken no meaningful steps to implement the project, no development activity had commenced, and the agreement had effectively broken down. In the absence of willingness to perform, the statutory conditions for part performance were not met.

Conclusion: No transfer arose under section 2(47)(v) read with section 53A.

Final Conclusion: The additions made on account of alleged capital gains were not sustainable, and the assessee succeeded while the Revenue's challenge failed.

Ratio Decidendi: An agricultural land outside the notified municipal area is not a capital asset, and a development agreement does not constitute a deemed transfer unless the transferee is willing and ready to perform its obligations so as to attract section 53A.

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