Capital gains on development agreement land fail where possession is not delivered and section 2(47)(v) cannot apply.

Capital gains tax was not chargeable on the remaining land because possession had not been delivered in part performance of the development agreement, so the conditions corresponding to section 53A of the Transfer of Property Act were not satisfied. Without the statutory ingredients for section 2(47)(v) of the Income-tax Act, the deeming transfer provision could not operate, and no capital gains accrued on the untransferred land. The addition was therefore unsustainable.

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Issues: Whether capital gains tax was chargeable on the remaining land under the development arrangement in the absence of delivery of possession and fulfillment of the conditions for part performance, so as to attract section 2(47)(v) of the Income-tax Act, 1961.

Analysis: The assessee's case was held to be covered by binding precedent on similar facts. The decisive consideration was that possession of the entire land had not been handed over in part performance of the development agreement, and the statutory requirements corresponding to section 53A of the Transfer of Property Act, 1882 were not satisfied. The arrangement also contained a force majeure clause, and the developers' willingness and ability to perform their obligations was not established. In these circumstances, the deeming provision treating a transfer as having taken place could not operate, and no accrual of capital gains was found in respect of the land that remained untransferred.

Conclusion: Capital gains tax was not exigible on the facts, as section 2(47)(v) of the Income-tax Act, 1961 did not apply; the addition was unsustainable and the assessee succeeded.

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