Permissive possession under a joint development agreement may not trigger transfer or capital gains where legal possession is never delivered.

Mere permissive possession under a joint development agreement does not amount to transfer under section 2(47)(v) unless the arrangement satisfies part performance under section 53A of the Transfer of Property Act, 1882. Where the developer is only given a licence to enter, while the owner retains inspection rights and legal possession is not delivered, the transfer condition is not met. If the proposed project later fails because of legal restraints, such as refusal of environmental consent, the arrangement does not result in a completed transfer and capital gains under section 45 do not arise for that year.

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Issues: (i) Whether handing over only permissive possession under the joint development agreement amounted to transfer under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882; (ii) Whether capital gains under section 45 of the Income-tax Act, 1961 were attracted when the proposed project did not materialise because of legal restraints.

Issue (i): Whether handing over only permissive possession under the joint development agreement amounted to transfer under section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882.

Analysis: The agreement described the developer's entry upon the property as a licence for development and preserved the owner's right of inspection, which showed that legal possession was not delivered. For section 2(47)(v) to apply, the transaction must fall within part performance under section 53A of the Transfer of Property Act, 1882, and permissive possession by itself is insufficient to constitute such transfer.

Conclusion: No transfer arose under section 2(47)(v), and this issue is answered in favour of the assessee.

Issue (ii): Whether capital gains under section 45 of the Income-tax Act, 1961 were attracted when the proposed project did not materialise because of legal restraints.

Analysis: The project was prevented from implementation by refusal of consent from the environmental and pollution control authorities, and the earlier arrangement was later superseded by a fresh development arrangement. In such circumstances, the transaction did not result in a completed transfer giving rise to chargeable capital gains for the relevant year.

Conclusion: Section 45 was not attracted for the relevant assessment year, and this issue is also answered in favour of the assessee.

Final Conclusion: The addition of capital gains for the relevant assessment year could not be sustained on the facts found, and the assessee obtained substantial relief.

Ratio Decidendi: Mere permissive possession under a joint development agreement, without delivery of legal possession in part performance of a contract, does not amount to transfer under section 2(47)(v); if the project itself does not fructify due to legal restraint, no capital gains charge arises for that year.

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