Possession-based development agreements can trigger transfer for capital gains, while denial of cross-examination may require fresh assessment.

A development arrangement that granted possession, involved a power of attorney, and evidenced receipt of consideration was treated as a transfer in part performance for capital gains purposes, and registration of sale deeds in favour of flat purchasers was not decisive. The note also highlights that where an assessment is based substantially on third-party letters and statements, denial of cross-examination and supply of relied-upon material offends fairness and can require the capital gains computation to be set aside for fresh examination. The ratio stated is that section 2(47)(v) is attracted by possession-based development transactions, while adverse material must be tested by cross-examination.

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Issues: (i) Whether the assessee's development arrangement, coupled with handing over possession and receipt of consideration, amounted to a transfer within section 2(47)(v) of the Income-tax Act, 1961; (ii) Whether denial of cross-examination of the developer's representatives required interference with the assessment and a fresh examination of capital gains.

Issue (i): Whether the assessee's development arrangement, coupled with handing over possession and receipt of consideration, amounted to a transfer within section 2(47)(v) of the Income-tax Act, 1961.

Analysis: The agreement with the developer, the grant of power of attorney, the handing over of possession, and the assessee's own acknowledgment of receipt of payments and adjustment of construction value showed that the transaction had the effect of allowing possession in part performance. The statutory definition of transfer includes such arrangements, and registration or execution of sale deeds in favour of flat purchasers was not decisive for applying section 2(47)(v). The transfer was therefore treated as having occurred in the relevant previous years for capital gains purposes.

Conclusion: The transaction constituted a transfer within section 2(47)(v), and the assessee's objection on absence of registered sale deeds was rejected.

Issue (ii): Whether denial of cross-examination of the developer's representatives required interference with the assessment and a fresh examination of capital gains.

Analysis: The additions were founded substantially on information and letters furnished by the developer, but the assessee's request to cross-examine the persons whose statements and letters were relied upon was not allowed. Since the material was used against the assessee, fairness required that the assessee be supplied with the documents and granted an opportunity to test that material by cross-examination. The proper course was therefore to set aside the quantum determination and direct a fresh inquiry after affording adequate opportunity.

Conclusion: The matter had to be remanded for de novo examination of the capital gains with opportunity of cross-examination.

Final Conclusion: The appeals succeeded only to the extent that the computation of capital gains was set aside for fresh adjudication, while the existence of a transfer under section 2(47)(v) was sustained.

Ratio Decidendi: A development arrangement that transfers possession in part performance and enables enjoyment of immovable property falls within section 2(47)(v) for capital gains purposes, and when the assessment relies on third-party material, denial of cross-examination warrants a fresh determination of the liability.

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