Capital gains on joint development agreements arise on actual transfer of possession; later reassessment for the wrong year was unsustainable.

Capital gains under a joint development arrangement arise when there is an actual transfer of possession satisfying Section 2(47) of the Income-tax Act and Section 53A of the Transfer of Property Act. The relevant facts showed that the agreement was executed in 2000, but vacant possession reached the developer only in 2003 after occupants were vacated. A later reassessment for assessment year 2010-11 based mainly on the developer's letter that construction was ready for occupation was not sustainable, particularly where the construction was not in terms of the development agreement and the matter remained under litigation. The capital gains could not therefore be taxed in assessment year 2010-11.

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Issues: Whether capital gains arising from the joint development arrangement were chargeable in the assessment year 2010-11 and whether the reassessment made on that basis was sustainable.

Analysis: The dispute turned on the point of transfer in a development agreement. The recorded facts showed that the original agreement was entered into in 2000, but the developer could obtain actual vacant possession only in 2003 after the occupants were vacated. The addition sought to be made for assessment year 2010-11 was founded mainly on the developer's letter stating that the construction was ready for occupation, even though the construction was not in terms of the development agreement and the dispute remained subject to litigation. Applying the principle that capital gains arise when possession is actually handed over so that the transaction satisfies the ingredients of transfer under Section 2(47) of the Income-tax Act, 1961 and Section 53A of the Transfer of Property Act, the later year adopted by the revenue was not sustainable.

Conclusion: The capital gains could not be taxed in assessment year 2010-11, and the reassessment based on that premise was unsustainable.

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