Capital gains on joint development agreements: effective possession and development rights can trigger transfer despite incomplete legal conveyance.

A joint development agreement was treated as a transfer for capital gains purposes because it gave the developer possession-related rights and effective control to obtain approvals, enter upon the property, advertise and sell flats, and act under a power of attorney, while consideration was received and the arrangement was implemented through subsequent conveyances and construction. Applying section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act, the Tribunal noted that completed legal conveyance is not required where rights are transferred in part performance. Later paper arrangements could not defer the tax incidence, so capital gains were chargeable in the relevant assessment year.

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Issues: Whether the joint development agreement amounted to a transfer of capital asset in the relevant assessment year so as to attract capital gains under section 2(47)(v) of the Income-tax Act, 1961.

Analysis: The agreement conferred on the developer the right to obtain approvals, hold title deeds, advertise and sell flats through a power of attorney, and to enter upon and develop the property; the owners also received consideration and the arrangement was acted upon by subsequent conveyances and construction. The governing test was whether the transaction fell within the inclusive definition of transfer under section 2(47)(v), read with section 53A of the Transfer of Property Act, 1882, which does not require completion of transfer under general property law. Applying the settled principle that capital gains arise when possession and enabling rights are transferred in part performance, the Tribunal held that the later paper arrangements could not postpone tax incidence.

Conclusion: The joint development agreement constituted a transfer within section 2(47)(v), and capital gains were chargeable in the relevant assessment year.

Final Conclusion: The Revenue succeeded because the arrangement was treated as an effective transfer for income-tax purposes, warranting taxation of capital gains in the year of transfer.

Ratio Decidendi: For capital gains purposes, a transfer occurs when an agreement allows possession or effective enjoyment of immovable property in part performance, even if legal conveyance is not completed.

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