Development agreement and capital gains: permissive entry without transfer of possession does not trigger tax under section 2(47)(v).

For capital gains to arise under section 2(47)(v) on a development agreement, there must be effective transfer of possession and satisfaction of section 53A of the Transfer of Property Act, with the transferee ready and willing to perform the contract. A mere licence or permissive entry to enter the property and carry out construction does not amount to a transfer where complete control remains with the owner and possession is to pass later upon conveyance. On the stated facts, tenancy encumbrances, delayed approvals, and later commencement of development showed that no transfer took place in assessment year 2001-02, so capital gains could not be assessed in that year.

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Issues: Whether transfer of the property took place in the assessment year 2001-02 on execution of the development agreement so as to attract capital gains tax under section 2(47)(v) and section 2(47)(vi) of the Income-tax Act, 1961.

Analysis: The property remained encumbered by tenancy claims for several years, the tenants were vacated only subsequently, and the development activity did not commence in the year relevant to assessment year 2001-02. The agreement showed that only a licence to enter and carry out construction was granted, while possession was to be delivered later upon execution of conveyance. The surrounding facts, including delayed approvals and later receipt of substantial consideration, showed that complete control over the property had not passed in the relevant year and that the requirements of section 53A of the Transfer of Property Act were not satisfied on the date of the development agreement.

Conclusion: The transfer did not take place in assessment year 2001-02, and the capital gain could not be assessed in that year. The addition was therefore unsustainable and the appeal succeeded.

Ratio Decidendi: For capital gains to arise on the basis of a development agreement under section 2(47)(v), there must be effective transfer of possession and the transferee must be ready and willing to perform the contract; a mere licence or permissive entry without transfer of complete control does not constitute a transfer.

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