Development agreement with possession can trigger transfer for capital gains, while valuation and exemption claims need fresh verification.

A development agreement combined with handing over possession and performance of contractual obligations was treated as a transfer under section 2(47)(v) of the Income-tax Act read with section 53A of the Transfer of Property Act, so capital gains became taxable in the relevant assessment year. The computation of sale consideration, including the treatment of refundable deposit and built-up area, was remanded for fresh verification. The cost of acquisition, including demolition expenses, payments to occupants, and litigation , was also sent back for reconsideration. The alternate claim for deduction or exemption under sections 54 and 54F required factual and legal examination and was likewise remanded.

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Issues: (i) whether the development agreement and handing over of possession constituted transfer giving rise to capital gains in the relevant assessment year; (ii) whether the sale consideration adopted by the Assessing Officer required reconsideration; (iii) whether the cost of acquisition required fresh determination; and (iv) whether deduction under sections 54/54F was allowable and required examination.

Issue (i): whether the development agreement and handing over of possession constituted transfer giving rise to capital gains in the relevant assessment year.

Analysis: The agreement permitted the developer to enter upon the property, demolish existing structures, construct the residential complex, and receive a defined share in the built-up area. The owners were required to place the developer in actual possession and the record showed that impediments had substantially been cleared. On these facts, the arrangement satisfied the ingredients of part performance under section 53A of the Transfer of Property Act and attracted the deeming provision of section 2(47)(v) of the Income-tax Act, 1961. The tribunal distinguished cases where agreements were not implemented or where willingness to perform was absent.

Conclusion: The transfer was taxable in the relevant assessment year and this issue was decided against the assessee.

Issue (ii): whether the sale consideration adopted by the Assessing Officer required reconsideration.

Analysis: The Assessing Officer had proceeded on more than one monetary component, including a refundable deposit and the value of constructed area. The matter was not examined properly by the lower authority, and the proper basis of valuation required verification with due opportunity to the assessee.

Conclusion: The issue was remanded for fresh consideration and stands in favour of the assessee to that extent.

Issue (iii): whether the cost of acquisition required fresh determination.

Analysis: The assessee's claim that the existing structures, demolition-related expenditure, payments to occupants, and litigation expenses formed part of acquisition cost was not examined on the relevant material. The computation therefore required factual verification and reconsideration.

Conclusion: The issue was remanded for fresh consideration and stands in favour of the assessee to that extent.

Issue (iv): whether deduction under sections 54/54F was allowable and required examination.

Analysis: Since the transaction involved construction of residential flats in exchange for the property rights, the claim for exemption or deduction under sections 54/54F required examination on facts and in law. The authorities below had not properly addressed the alternate claim, and the matter was sent back for appropriate verification.

Conclusion: The issue was remanded for fresh consideration and stands in favour of the assessee to that extent.

Final Conclusion: The capital gains were held taxable in the relevant year, but the computation of consideration, acquisition cost, and exemption claims was restored to the Assessing Officer for fresh adjudication, resulting in only partial relief to the assessee.

Ratio Decidendi: A development agreement coupled with handing over of possession and performance of contractual obligations can amount to a transfer under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, while valuation and exemption-related components may be remanded where they have not been properly examined.

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