Joint development agreement did not trigger transfer for capital gains because possession was not given in part performance.

Execution of a joint development agreement did not by itself amount to a transfer of the capital asset for capital gains purposes in the relevant previous year. Section 45 applies only if a transfer occurs in that year, and the deeming rule in section 2(47)(v) operates only when possession is allowed or retained in part performance within section 53A of the Transfer of Property Act. Here, the agreement described the developer's entry as mere permission to enter, not delivery of possession in part performance, and later material showed legal possession was given only subsequently. No transfer arose in assessment year 2006-07, so capital gains could not be taxed then and the addition was deleted.

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Issues: Whether execution of the joint development agreement resulted in a transfer of the capital asset during the previous year relevant to assessment year 2006-07 so as to attract capital gains tax in that year.

Analysis: For capital gains to be charged under section 45 of the Income-tax Act, 1961, there must be a transfer in the relevant previous year. The deeming provision in section 2(47)(v) applies only when possession of immovable property is allowed to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. The joint development agreement itself stated that the developer was given only permission to enter the property and that such authority was not to be construed as delivery of possession in part performance. The subsequent material also showed that legal possession was given later, which negatived the claim that a transfer had taken place in the relevant previous year.

Conclusion: There was no transfer during the previous year relevant to assessment year 2006-07, and the capital gains could not be assessed in that year. The addition was deleted and the appeal was allowed in favour of the assessee.

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