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Issues: (i) Whether the land had been converted into stock-in-trade and had ceased to be a capital asset before the development agreement was executed. (ii) Whether the development agreement and power of attorney constituted a transfer attracting capital gains under section 2(47)(v)/(vi) and whether any income accrued in the relevant year.
Issue (i): Whether the land had been converted into stock-in-trade and had ceased to be a capital asset before the development agreement was executed.
Analysis: The surrounding facts showed repeated and definite steps for commercial development, including conversion of agricultural land into non-agricultural land, submission and approval of layout plans, engagement of architects, procurement of clearances, and project financing efforts. Mere book entries were held not to be conclusive, and the contemporaneous material established that the assessee had embarked on a business venture in real estate development before the impugned agreement. The land was therefore treated as having been converted into stock-in-trade and not retained as a capital asset for the relevant year.
Conclusion: The issue was decided in favour of the assessee.
Issue (ii): Whether the development agreement and power of attorney constituted a transfer attracting capital gains under section 2(47)(v)/(vi) and whether any income accrued in the relevant year.
Analysis: For section 2(47)(v), the statutory conditions linked to section 53A of the Transfer of Property Act, 1882 were not satisfied because the agreement was not registered, possession remained with the assessee, and the developer was given only a licence to enter the property. Section 2(47)(vi) was also found inapplicable on the facts. The record further showed that the developer did not undertake development during the year, no sale consideration had actually accrued, the stated amount was only a benchmark arrangement, and the agreement was later annulled. Accordingly, no transfer and no taxable accrual arose in the relevant assessment year.
Conclusion: The issue was decided in favour of the assessee.
Final Conclusion: The additions towards capital gains based on the development agreement were not sustainable, and the appeals succeeded.
Ratio Decidendi: A development arrangement does not attract capital gains unless the asset remains a capital asset and the statutory conditions for part performance and transfer are actually satisfied; where possession is retained, the agreement is unregistered, and no real accrual of consideration occurs, no transfer or taxable gain arises.
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