Development agreement possession test under section 2(47)(v): no transfer where developer lacked part-performance possession

A joint development agreement does not amount to a transfer under section 2(47)(v) unless it places the developer in possession in the nature of part performance under section 53A and gives effective control over the capital asset. Here, the agreement allowed only limited entry for development, expressly denied delivery of possession in part performance, and kept legal possession with the owners. The developer also had no exclusive possession, and entry was contingent on preconditions that were not satisfied during the relevant year. No transfer arose in that year, so capital gains could not be levied.

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Issues: Whether the permission granted under the joint development agreement amounted to a transfer of the capital asset under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882 so as to attract capital gains under section 45 of the Income-tax Act, 1961.

Analysis: The joint development agreement permitted the developer to enter the property only for the limited purpose of development, and expressly stated that such permission would not amount to delivery of possession in part performance. The legal possession of the land continued to vest with the owners, and the developer had no exclusive possession during the relevant previous year. The permission to enter was also contingent upon fulfillment of preconditions, including approval of plans and grant of licence, and on the facts found, even such permissive entry was not available before the commencement permission issued in August 2009. On these facts, the requirements of section 53A were not satisfied and there was no transfer in the relevant year.

Conclusion: The capital gains addition for the relevant assessment year could not be sustained because no transfer within the meaning of section 2(47)(v) had taken place in that year.

Ratio Decidendi: A development agreement does not result in transfer under section 2(47)(v) unless it confers possession in the nature of part performance under section 53A and transfers effective control to the developer.

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