Capital gains on development agreements depend on possession in part performance, not mere execution of the contract.

Capital gains under section 2(47)(v) arise only when possession is allowed in part performance of a contract covered by section 53A of the Transfer of Property Act, 1882. In a development-cum-sale arrangement with staged consideration, cancellation rights on default, and delivery of possession linked to receipt of a statutory no-objection certificate and balance payment, execution of the agreement alone did not transfer effective control. Where only earnest money was paid at execution and possession remained with the owners until a later date, the transfer was not complete in the agreement year and capital gains were not chargeable then.

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Issues: Whether, on the facts of a development-cum-sale agreement, capital gains arose in the assessment year in which the agreement was executed or in the later year when possession was actually handed over, for purposes of section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882.

Analysis: The agreement provided for staged payment of consideration, cancellation on default, and delivery of possession only after substantial conditions were satisfied, including receipt of the statutory no-objection certificate and payment of the balance consideration. Only earnest money was received when the agreement was executed, while possession continued with the owners for years thereafter and was evidenced as having been handed over only on a later date. In these circumstances, the developer had not obtained complete control over the property merely by execution of the agreement and payment of a small part of the consideration. The deeming provision under section 2(47)(v) could operate only when possession was allowed in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.

Conclusion: The transfer was not complete in the year of the agreement and capital gains were not chargeable in that year; the addition was rightly deleted.

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