Capital gains on development agreements depend on proof of possession under part performance before transfer can be taxed.

Development agreements granting development rights attract capital gains tax under section 2(47)(v) only where the transaction satisfies section 53A of the Transfer of Property Act, including effective delivery of possession in part performance. Where the record does not show that possession was actually handed over, the foundational requirement for treating the arrangement as a transfer is not established, and taxability cannot be sustained on an incomplete or hypothetical transaction. The ITAT therefore set aside the finding of taxability for the year and remitted the matter for de novo examination of possession and consequential capital gains consequences, including any computation issues arising only if the transfer is first proved.

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Issues: Whether the development agreements for grant of development rights amounted to a transfer of capital assets so as to attract capital gains tax in the relevant assessment year, and whether the matter required fresh examination on the question of handing over of possession.

Analysis: The agreements granted development rights, but the crucial factual question was whether possession had in fact been handed over so as to bring the transaction within section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882. The essential ingredients of part performance require a contract in writing and, importantly, delivery or retention of possession in part performance. The lower authorities had not examined whether possession was actually transferred. In view of the Supreme Court's exposition that, absent an enforceable transfer in the sense required by section 53A, no transfer can be said to arise and no capital gain can be taxed on a merely hypothetical or incomplete transaction, the issue could not be finally decided on the existing record. The applicability of section 50C and computation of consideration would arise only if the transaction is first found taxable.

Conclusion: The finding that the transaction was taxable in the year in question was set aside, and the matter was remitted to the Assessing Officer for de novo adjudication on the question of possession and consequential taxability. The assessee succeeded only to that extent.

Ratio Decidendi: A development agreement attracts capital gains tax under section 2(47)(v) only if it satisfies the requirements of part performance under section 53A, including effective transfer of possession; where that foundational fact is not examined or established, the matter must be re-adjudicated before taxability can be sustained.

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