Development agreement triggers capital gains in year of agreement; reassessment upheld, but holding period and valuation remanded.

Reassessment under section 147 was sustained because the development agreement came to the Assessing Officer's notice only through later survey material, so the reopening was not a mere change of opinion. Capital gains were held to arise in the year of the development agreement under section 2(47)(v), as the agreement granted possession and development rights amounting to part performance; section 45(5A) was treated as inapplicable to the assessment year. The questions whether the asset was short-term or long-term and the correct basis for computing consideration were remanded for fresh factual examination because the period of holding and valuation had not been properly verified.

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Issues: (i) Whether the reassessment under section 147 was valid; (ii) whether capital gains arose in the year of the development agreement under section 2(47)(v); (iii) whether the asset was a short-term or long-term capital asset and whether the value adopted for computation of consideration required fresh examination.

Issue (i): Whether the reassessment under section 147 was valid

Analysis: The return had been processed earlier and the development agreement had come to the Assessing Officer's notice only through survey proceedings in the developer's case. The reopening was not based merely on a change of opinion but on material that came subsequently to the Assessing Officer's knowledge.

Conclusion: The reopening was held valid and was sustained.

Issue (ii): Whether capital gains arose in the year of the development agreement under section 2(47)(v)

Analysis: The agreement enabled the developer to enter the property and undertake construction activities, and the transfer was treated as falling within part performance of a contract of the kind contemplated by section 53 of the Transfer of Property Act, 1882. The later insertion of section 45(5A) was treated as inapplicable to the assessment year in question.

Conclusion: Capital gains were held to arise in the year of the development agreement.

Issue (iii): Whether the asset was a short-term or long-term capital asset and whether the value adopted for computation of consideration required fresh examination

Analysis: The period of holding and the correct basis of consideration were not properly examined. The Assessing Officer had taken the date of registration as decisive and had also adopted the wrong basis for valuation by proceeding on the entire land and on later construction values, whereas only the transferred share and the relevant date values required consideration. These matters needed factual verification.

Conclusion: The questions of holding period and computation of consideration were remanded to the Assessing Officer for fresh examination.

Final Conclusion: The reassessment and the year of taxability of capital gains were sustained, but the issues relating to the nature of the capital asset and the correct computation base were set aside for reconsideration, resulting in partial relief to the assessees.

Ratio Decidendi: Where a development agreement confers possession and rights enabling the developer to enter and perform construction, section 2(47)(v) is attracted and capital gains arise in the year of the agreement; however, the period of holding and the correct consideration for computation must be determined on proper factual examination.

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