Development agreement and capital gains: future share in constructed area alone did not trigger taxable accrual on execution.

Where a development agreement provided only for receipt of 35% of the constructed residential area on project completion, capital gains did not accrue in the year of execution because no monetary consideration was payable and the agreed consideration had neither been received nor accrued. The development was not completed in the relevant assessment year, the developer had not performed its obligations, and disputes over delay showed that the conditions for part performance under section 53A were not satisfied, including willingness to perform. Mere execution of the agreement therefore did not amount to a transfer under section 2(47)(v), and no long-term capital gain was chargeable in that year.

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Issues: Whether long-term capital gain arose in the year of execution of a development agreement where the consideration was to be received only as 35% of the developed residential area on completion of the project, and whether such agreement constituted a transfer attracting section 2(47)(v).

Analysis: The assessee entered into a development agreement under which no monetary consideration was payable and the only consideration was a share in the built-up area on completion. The project was not completed in the relevant year, the developer had not performed its obligations, and there was dispute and legal action regarding delay. In these circumstances, the agreed consideration had neither been received nor accrued in the assessment year. The conditions of part performance under section 53A were also not satisfied because the developer was not willing to perform its part of the contract. Mere execution of the development agreement did not, by itself, bring about taxable accrual of capital gain in the year under consideration.

Conclusion: No long-term capital gain was chargeable in the impugned assessment year, and the addition was liable to be deleted.

Final Conclusion: The appeal succeeded because the transfer under the development agreement did not result in taxable capital gains in the relevant year.

Ratio Decidendi: Where consideration under a development agreement is confined to a future share in constructed area and the project is not completed or the contractual conditions for part performance are not fulfilled, capital gain does not accrue merely on execution of the agreement.

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