Deemed transfer and part performance principles barred capital gains tax on a development agreement in the relevant year.

Capital gains arising from a development agreement were not taxable in the year of execution because the deemed transfer rule did not apply on the facts. The agreement was only for development, and the developer had not obtained sanction, commenced construction, or otherwise shown readiness and willingness to perform during the relevant year. Mere execution of the agreement and receipt of a refundable deposit did not amount to transfer or accrual of consideration. As the essential requirements of part performance under Section 53A of the Transfer of Property Act were absent, the arrangement could not be treated as a contract covered by the deeming provision, and the addition based on capital gains was unsustainable.

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Issues: Whether capital gains arising from the development agreement were taxable in the year of the agreement under the deemed transfer rule, and whether the conditions of part performance were satisfied so as to attract capital gains liability.

Analysis: The land was given only for development under the agreement, and the developer had not obtained sanction, commenced construction, or otherwise shown willingness to perform the contract during the relevant year. Mere execution of the agreement and receipt of a refundable deposit did not establish accrual of consideration or a transfer within the meaning of the deeming provision. For the deeming transfer to operate, the transaction must answer the requirements of part performance under Section 53A of the Transfer of Property Act, including the transferee's readiness and willingness to perform. On the facts, that essential condition was absent, and the agreement could not be treated as a contract of the nature referred to in Section 53A.

Conclusion: The capital gains could not be brought to tax in the assessment year in question, and the addition made on that basis was unsustainable.

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