Capital gains on joint development agreements arise only when transfer conditions are met and possession is effectively handed over.

A joint development agreement did not give rise to taxable capital gains in the relevant assessment year because the conditions for a transfer under section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act were not satisfied. The developer had not obtained municipal approvals, development had not commenced, and effective possession of the immovable property was not shown to have been handed over. The amount received was only an interest-free refundable security deposit, so capital gains could not be treated as having accrued merely on execution of the agreement.

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Issues: Whether capital gains could be brought to tax in the assessment year in respect of a joint development agreement when the developer had not obtained municipal approvals and the assessee had not handed over possession of the immovable property in the relevant year.

Analysis: The arrangement was only a joint development agreement under which the assessee contributed land and was to receive a share in the constructed area. The amount received was only an interest-free refundable security deposit. The conditions necessary to treat the transaction as a transfer under section 2(47)(v) of the Income-tax Act, read with section 53A of the Transfer of Property Act, were not satisfied in the relevant year because the developer had not obtained the required approvals, had not commenced development, and effective possession was not shown to have been handed over. On these facts, capital gains could not be said to have arisen merely on execution of the agreement.

Conclusion: The addition towards long-term capital gains was not sustainable in the relevant assessment year and the Revenue's appeals failed.

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