Transfer of land rights to a consortium can trigger capital gains, with holding period counted from acquisition of rights.

Property-related rights in an allotted land parcel can constitute a capital asset, and their contribution to a consortium can amount to a transfer under section 2(47)(vi) even without formal conveyance, making capital gains chargeable. For classification, the holding period must be counted from the date the assessee acquired the relevant rights; on that basis, the gain was treated as long-term capital gain rather than short-term capital gain. A mistaken assessment-year reference in the order and demand notice was treated as a curable clerical defect and did not invalidate the assessment.

---

---

Issues: (i) Whether the assessee's rights in the allotted land were a capital asset and whether their contribution to the consortium amounted to transfer attracting capital gains tax; (ii) Whether the resultant capital gain was to be assessed as short-term capital gain or long-term capital gain; (iii) Whether the assessment year error in the assessment order and demand notice vitiated the assessment.

Issue (i): Whether the assessee's rights in the allotted land were a capital asset and whether their contribution to the consortium amounted to transfer attracting capital gains tax.

Analysis: The assessee had been allotted the land, had obtained possession and had subsequently entered into a consortium agreement under which it contributed all its rights in the property to the consortium. The agreement and the consortium accounts showed that the assessee treated the property-related rights as a capital contribution. The expression "transfer" in section 2(47)(vi) is wide and includes a transaction which has the effect of transferring or enabling the enjoyment of immovable property. The fact that the assessee did not hold a full legal title did not matter, because the rights held by it constituted a bundle of rights capable of being dealt with and were in substance passed on to the consortium.

Conclusion: The transaction amounted to transfer of a capital asset and capital gains were taxable.

Issue (ii): Whether the resultant capital gain was to be assessed as short-term capital gain or long-term capital gain.

Analysis: The assessee had been allotted the property in 2001 and the lease-cum-sale deed was executed in 2003, while the consortium agreement was entered into in 2004. For the purpose of capital gains, the period of holding had to be computed from the date on which the assessee acquired the relevant property rights. On that basis, the asset had been held for more than the prescribed period. The computation, therefore, could not be sustained as short-term capital gain.

Conclusion: The gain was assessable as long-term capital gain and not as short-term capital gain.

Issue (iii): Whether the assessment year error in the assessment order and demand notice vitiated the assessment.

Analysis: The apparent reference to a wrong assessment year on one page of the assessment order was a curable mistake. The reassessment proceedings, the appeal, and the demand notice all related to the correct assessment year, and the error did not affect the substance of the assessment.

Conclusion: The clerical error did not vitiate the assessment.

Final Conclusion: The addition on account of transfer of land-related rights was sustained, but the income was directed to be assessed under the head of long-term capital gains, and the assessment-year discrepancy was treated as a curable defect.

Ratio Decidendi: A transaction by which an assessee contributes its property-related rights to a consortium or similar arrangement can constitute a transfer under section 2(47)(vi) even without a formal conveyance, and the period of holding for capital gains must be determined from the date the relevant rights were acquired.

---