Deemed transfer in development agreements can trigger capital gains tax when possession and effective control pass in part performance.

Development agreements can trigger deemed transfer for capital gains where the developer is given possession, effective control and part-performance rights, even if legal title remains with the owner and later disputes arise. In such cases, section 2(47)(v) read with section 53A of the Transfer of Property Act operates to bring the gain to tax in the year of transfer. The note also states that a valuation used in wealth-tax proceedings need not bind the assessee for capital gains computation if a different fair market value is otherwise supportable. It further emphasises that the same capital gain cannot be assessed twice in a later year.

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Issues: (i) Whether the transfer of development rights under the development agreement amounted to a transfer of a capital asset in the previous year relevant to assessment year 1995-96 so as to attract capital gains tax. (ii) Whether the indexed cost of acquisition adopted by the assessee in wealth-tax proceedings could be substituted for computing capital gains. (iii) Whether the same capital gain could again be assessed in assessment year 1996-97.

Issue (i): Whether the transfer of development rights under the development agreement amounted to a transfer of a capital asset in the previous year relevant to assessment year 1995-96 so as to attract capital gains tax.

Analysis: The agreement conferred development rights on the developer, substantial consideration was paid during the year, the developer entered upon the property, undertook development activity, and the surrounding facts showed effective possession and control for development purposes. The statutory fiction in section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882 was attracted because the transaction involved allowing possession in part performance of a contract and the transferee was willing to perform its obligations. Subsequent disputes did not negate the transfer already brought about for tax purposes under section 45 of the Income-tax Act, 1961.

Conclusion: This issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the indexed cost of acquisition adopted by the assessee in wealth-tax proceedings could be substituted for computing capital gains.

Analysis: The Tribunal followed the earlier view taken on identical facts that the assessee was not bound to remain tied to the value earlier shown in wealth-tax proceedings. Since the valuation there was for a different purpose and the later adoption of a more appropriate fair market value was permissible, the assessee's claim to a higher cost base was accepted.

Conclusion: This issue was decided in favour of the assessee and against the Revenue.

Issue (iii): Whether the same capital gain could again be assessed in assessment year 1996-97.

Analysis: The capital gain arising from the transfer had already been held to accrue in assessment year 1995-96. Taxing the same gain again in the subsequent year would amount to repetitive assessment of the same income. The Tribunal therefore upheld the deletion of the second addition.

Conclusion: This issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The transfer of development rights was taxable in assessment year 1995-96, but the same capital gain could not be taxed again in assessment year 1996-97, and the assessee's cost-of-acquisition claim was accepted on the facts as found.

Ratio Decidendi: For capital gains on development agreements, a deemed transfer arises when the developer is allowed possession and effective control in part performance of a written contract and is willing to perform, even if legal title remains with the owner or later disputes arise; the same income cannot be taxed twice.

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