Development agreement capital gains must be split by transfer year, with flat-sale exemption claims requiring fresh factual examination.

Transfer of land under a development agreement and the later sale of flats received in consideration are treated as distinct capital transactions, so capital gains must be taxed only in the year in which each transfer actually occurs. On that basis, gains from the earlier land transfer could not be assessed again in the year under appeal, while only the flats actually sold in the relevant year were to be included in recomputation, limited to the assessee's share. The claim for deduction under section 54F and section 54 also required fresh examination because eligibility depended on the dates of sale of the flats and the assessee's residential-house ownership position, which had not been properly verified.

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Issues: (i) whether capital gains arising from the transfer of land under a development agreement and the subsequent sale of flats could be brought to tax in the assessment year in question, and whether such transactions had to be bifurcated for computation purposes; (ii) whether the claim for deduction under section 54F and section 54 required fresh examination in light of the dates on which the flats were sold and the assessee's ownership position.

Issue (i): whether capital gains arising from the transfer of land under a development agreement and the subsequent sale of flats could be brought to tax in the assessment year in question, and whether such transactions had to be bifurcated for computation purposes.

Analysis: The transfer of land pursuant to a development agreement and the transfer of flats received in consideration were treated as two separate capital transactions. Applying the principle that transfer occurs when possession is handed over in part performance and that capital gains arise in the year of transfer, the earlier transfer of land could not be taxed again in the year under appeal. The sale of flats, however, had to be examined separately, and only the flats actually sold in the relevant year could enter the computation. The capital gains computation therefore required bifurcation, and the assessee's share alone could be assessed.

Conclusion: The issue was decided in favour of the assessee to the extent that capital gains on the land transfer could not be assessed in the year under appeal, and only the relevant sales of flats could be considered on recomputation.

Issue (ii): whether the claim for deduction under section 54F and section 54 required fresh examination in light of the dates on which the flats were sold and the assessee's ownership position.

Analysis: The eligibility for exemption depended on whether the assessee owned more than the permissible number of residential houses on the date of transfer and on the exact sale chronology of the flats received under the development arrangement. As the factual matrix concerning the sale dates of the apartments and the assessee's residential-house ownership had not been properly examined, the claim could not be finally rejected and required reconsideration.

Conclusion: The issue was remitted for fresh examination and was not finally decided against the assessee.

Final Conclusion: The assessment and appellate orders were set aside for fresh computation of capital gains on the relevant flats and for reconsideration of the exemption claim, with due opportunity to the assessee.

Ratio Decidendi: In a development-agreement arrangement, transfer of land and sale of the flats received in consideration are distinct capital transactions, and capital gains must be taxed only in the year in which each transfer actually occurs.

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