Capital gains on development agreement depend on transfer in part performance; absence of possession defeats taxability.

Capital gains under section 45 arise only on a transfer of a capital asset within section 2(47), and a development agreement is taxable as a transfer only if it satisfies the requirements of part performance under section 53A of the Transfer of Property Act. Those requirements include a written contract, ascertainable terms, consideration, delivery or continuation of possession in part performance, acts in furtherance, and readiness and willingness to perform. Where possession is not handed over and the elements of part performance are absent, the agreement does not amount to a transfer for capital gains purposes, and the resulting addition is not sustainable.

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Issues: Whether capital gains could be brought to tax on a development agreement where possession of the land was not handed over and the ingredients of part performance were not satisfied.

Analysis: Capital gains under section 45 arise only when there is a transfer of a capital asset within the meaning of section 2(47) of the Income-tax Act, 1961. In the case of a development agreement, taxability as a transfer depends upon whether the transaction amounts to a sale or falls within part performance under section 53A of the Transfer of Property Act. The essential requirements include a written contract, consideration, ascertainable terms, possession being delivered or continued in part performance, acts in furtherance, and willingness to perform. On the facts, possession had not been handed over and the necessary elements of part performance were not established.

Conclusion: Capital gains were not chargeable on the development agreement, and the deletion of the addition was justified. The Revenue's appeal failed.

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