Capital gains on development agreements were not taxable where possession and effective transfer to the developer never occurred.

Capital gains were not chargeable in the year under consideration because the development agreements did not satisfy the conditions for a transfer under the deeming provision in section 2(47)(v). Physical possession was not shown to have passed in the relevant year, one agreement was later cancelled without development, and the other was never effectively implemented, with the project ultimately taken over and completed by the landowners and others after the developer defaulted. On these facts, the agreements did not confer complete control over the property on the developer, and any capital gain was only hypothetical.

---

---

Issues: Whether capital gains could be brought to tax in the assessment year on the basis of the development agreements, where one agreement was subsequently cancelled and the other did not culminate in effective transfer or handing over of possession.

Analysis: The development agreements were to operate only after approvals and physical possession was not shown to have passed in the relevant year in the manner required to attract section 2(47)(v). One agreement was later cancelled without any development, while the other was not fulfilled and ultimately the project had to be taken over and completed by the land owners and others after the developer defaulted. On these facts, the agreements did not result in passing of complete control over the property in favour of the developer, and the statutory conditions for treating the transactions as transfer under the deeming provision were not satisfied. The subsequent events showed that no real income accrued in the year under consideration and any capital gain would be only hypothetical.

Conclusion: Capital gains were not taxable in the year under consideration on the basis of the impugned development agreements.

---