Redevelopment agreement and limited possession do not amount to transfer for capital gains where no part-performance transfer is established.

An unregistered redevelopment memorandum that only permitted limited possession to a developer for demolition and reconstruction did not amount to a transfer in part performance under section 53A of the Transfer of Property Act read with section 2(47)(v) of the Income-tax Act, because the developer was treated as a licensee and the arrangement was terminated before completion; no capital gains arose in the relevant year and the addition was deleted. The property income was held assessable in the hands of the co-owners according to their definite shares under section 26, as inheritance did not create an Association of Persons. Reopening under sections 147 and 148 was sustained because it was based on fresh tangible material with a nexus to possible escapement of income.

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Issues: (i) whether the redevelopment arrangement under an unregistered memorandum of understanding and the handing over of limited possession to the developer amounted to a transfer giving rise to capital gains in the relevant assessment year; (ii) whether the income from the property could be assessed in the hands of an Association of Persons instead of the co-owners; and (iii) whether reopening of assessment under sections 147 and 148 was valid in the connected appeals.

Issue (i): whether the redevelopment arrangement under an unregistered memorandum of understanding and the handing over of limited possession to the developer amounted to a transfer giving rise to capital gains in the relevant assessment year.

Analysis: The arrangement was found to be only for demolition and reconstruction, with the developer acting as a licensee for limited purposes. The memorandum of understanding was unregistered, and the statutory regime under section 17(1A) and section 49 of the Registration Act, 1908, read with section 53A of the Transfer of Property Act, 1882, meant that an unregistered contract could not operate as a transfer in part performance. The possession was not treated as possession in the character of a purchaser under section 2(47)(v) of the Income-tax Act, 1961. The agreement had also been terminated before completion, and the factual matrix did not support a concluded transfer in the year under appeal.

Conclusion: No taxable transfer by way of capital gains arose in the relevant assessment year; the additions were deleted and the issue was decided in favour of the assessee.

Issue (ii): whether the income from the property could be assessed in the hands of an Association of Persons instead of the co-owners.

Analysis: The property was held by the family members as co-owners with definite and ascertainable shares, and the succession by inheritance did not create an Association of Persons. In such a situation, section 26 of the Income-tax Act, 1961, requires assessment according to the respective shares of the co-owners rather than as a separate AOP or BOI.

Conclusion: The income could not be assessed as that of an Association of Persons; the contention of the assessee on AOP status was rejected, and the income was held assessable only in the hands of the co-owners according to their shares.

Issue (iii): whether reopening of assessment under sections 147 and 148 was valid in the connected appeals.

Analysis: The reopening was founded on fresh tangible material received from the assessing officer of the principal co-owner, which showed possible escapement of income on the part of the other co-owners. The material had a direct nexus with the belief that income had escaped assessment, and the reopening was within four years from the end of the assessment year. On that basis, the jurisdictional challenge failed.

Conclusion: Reopening under sections 147 and 148 was upheld as valid in the connected appeals.

Final Conclusion: The principal appeal succeeded on the merits and the capital-gains addition was deleted, while the connected appeals succeeded only in part because the reopening was sustained but the merits were decided in line with the principal appeal.

Ratio Decidendi: An unregistered redevelopment agreement that merely permits limited possession to a developer as licensee, and is later terminated before completion, does not constitute a transfer in part performance under section 53A of the Transfer of Property Act, 1882 read with section 2(47)(v) of the Income-tax Act, 1961.

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