Deemed transfer under a development agreement fails without readiness and willingness to perform, so capital gains were not taxable.

A development agreement did not create a deemed transfer because the transferee was not ready and willing to perform the contract, and no meaningful development activity had begun. The Tribunal applied the section 53A part-performance requirement and held that, without such willingness and actual implementation, section 2(47)(v) of the Income-tax Act could not be invoked. It also noted that the land's agricultural character, and thus its non-capital-asset status, remained unchallenged. As a result, no capital gains arose in the relevant year and the tax additions were unsustainable.

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Issues: Whether capital gains arose in the relevant assessment year on the basis of the development agreement entered into by the assessees, and whether such agreement amounted to a transfer within the meaning of deemed transfer provisions.

Analysis: The Tribunal held that a development agreement by itself, or even handing over of possession, does not result in a transfer unless the transferee is willing and able to perform its obligations so as to attract the doctrine of part performance under section 53A of the Transfer of Property Act. On the facts, the developer had taken no meaningful steps towards implementation of the project, no development activity had commenced, and the agreement had effectively collapsed, with the parties having even moved to seek cancellation. The Tribunal followed its earlier coordinate bench decisions and reiterated that the essential requirement is the transferee's readiness and willingness to perform, which was absent here. It also noted that the finding that the land was agricultural and therefore not a capital asset remained unchallenged.

Conclusion: No transfer arose under section 2(47)(v) of the Income-tax Act, 1961 in the relevant year, and capital gains could not be brought to tax on the development agreement.

Final Conclusion: The additions made towards capital gains were unsustainable, and the assessees succeeded in resisting the tax demand.

Ratio Decidendi: For a development agreement to be treated as a deemed transfer, the transferee must be ready and willing to perform the contract under section 53A of the Transfer of Property Act; absent such willingness and actual implementation, section 2(47)(v) of the Income-tax Act, 1961 cannot be invoked.

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