Development agreement possession and prior appellate findings: capital gains and revision cannot arise without protected transfer or reopening settled issues.
Handing over land to a developer under a development agreement does not by itself create a transfer for capital gains unless possession is given in the legally protected sense contemplated by Section 53A of the Transfer of Property Act; where the owner retains rights in the constructed area and the developer's entitlement arises only after completion and division, Section 2(47)(v) and Section 45 are not triggered merely by execution of the agreement. The note also states that Section 263 cannot be used to revisit the treatment of retained constructed area and depreciation when the same property issue has already been conclusively decided in earlier appellate proceedings.
Issues: (i) whether handing over possession of land to a developer under a development agreement triggered a transfer attracting capital gains under Section 2(47)(v) and Section 45 of the Income-tax Act, 1961; (ii) whether the Commissioner could invoke Section 263 of the Income-tax Act, 1961 to reopen the treatment of the retained constructed area and depreciation, despite prior appellate findings.
Issue (i): whether handing over possession of land to a developer under a development agreement triggered a transfer attracting capital gains under Section 2(47)(v) and Section 45 of the Income-tax Act, 1961.
Analysis: Section 2(47)(v) covers only possession allowed in part performance of a contract of the kind protected by Section 53A of the Transfer of Property Act, 1882. A mere handing over of land for development, where the owner retains rights in the constructed area and the developer's entitlement arises only upon completion and apportionment, does not amount to such transfer. In the facts of the agreement, the developer's right to retain possession in the protected sense could arise only after construction was completed and the agreed division was effected. No taxable capital gain arose merely on execution of the agreement and delivery of land for development.
Conclusion: the first issue was decided in favour of the assessee and against the Revenue.
Issue (ii): whether the Commissioner could invoke Section 263 of the Income-tax Act, 1961 to reopen the treatment of the retained constructed area and depreciation, despite prior appellate findings.
Analysis: The issue whether the immovable property retained by the assessee was a fixed asset or a current asset had already been conclusively decided by the appellate authorities for earlier assessment years. Once that question stood settled in relation to the same property, the Commissioner could not reopen it in revision under Section 263. The revisional order on depreciation was therefore impermissible.
Conclusion: the second issue was decided in favour of the assessee and against the Revenue.
Final Conclusion: the revisional order could not survive on either ground, and the Revenue's appeal failed in full.
Ratio Decidendi: under a development agreement, transfer for capital gains purposes arises only when possession is given in the legally protected sense contemplated by Section 53A of the Transfer of Property Act, 1882, and Section 263 cannot be used to reopen an issue already conclusively decided by higher appellate authorities.
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