Capital gains on development agreement require actual accrual and satisfied deemed transfer conditions before taxability arises.

Capital gains under a development agreement cannot be taxed merely because the agreement is executed; deemed transfer under section 2(47)(v) applies only where the section 53A conditions are satisfied and income has actually accrued. On the record, there was no evidence of receipt of consideration or a vested right to receive it in the relevant year, and no actual performance by the developer establishing accrual. Accordingly, the agreement by itself did not trigger taxable capital gains for that year, and the addition was deleted in favour of the assessee.

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Issues: Whether capital gains arose in the year of execution of the development agreement and could be taxed on the footing of deemed transfer under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act.

Analysis: The assessee had entered into a development agreement, but the record did not show receipt of consideration or accrual of the right to receive consideration in the relevant year. The legal position applied was that capital gains cannot be brought to tax on a hypothetical basis and that deemed transfer under section 2(47)(v) operates only when the conditions of section 53A are satisfied. Since the developer had not shown actual performance giving rise to accrual of income, the execution of the agreement by itself was not treated as giving rise to taxable capital gains in the year under appeal.

Conclusion: Capital gains were not taxable in the year of the development agreement and the addition was deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessment of capital gains for the relevant year was set aside.

Ratio Decidendi: For a development agreement, capital gains cannot be assessed merely on execution of the agreement unless the statutory conditions for deemed transfer are fulfilled and income has accrued to the assessee.

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