Joint development agreement and capital gains: licence to develop did not trigger tax in the execution year; bank deposits were partly explained.

A joint development agreement that merely permits the developer to enter as a licensee for construction, while the owners retain entitlement to a defined share of the built-up area, was treated as not constituting a transfer under section 2(47)(v) in the year of execution. On that footing, capital gains were not taxable for that year, and the later recognition in section 45(5A) was noted as consistent with taxation arising on completion-related events rather than execution alone. For bank deposits, the explanation based on rental income, transfers from close relatives, and past savings was partly accepted, so only the unexplained balance was sustained.

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Issues: (i) Whether the joint development agreement executed with the developer amounted to a transfer of the capital asset in the relevant assessment year so as to attract capital gains tax; (ii) whether the addition sustained in respect of bank deposits required further interference.

Issue (i): Whether the joint development agreement executed with the developer amounted to a transfer of the capital asset in the relevant assessment year so as to attract capital gains tax.

Analysis: The agreement only permitted the developer to enter the property as a licensee for development and construction, with the owners retaining the right to receive a defined share of the constructed area. The arrangement was treated as not giving rise to a transfer under section 2(47)(v) in the year of execution, and the Tribunal followed the view already taken in the cases of the co-owners. The later charging provision in section 45(5A) was also noticed as supporting the legislative understanding that, in such development arrangements, taxability attaches on completion-related events rather than merely on execution of the agreement in the facts found.

Conclusion: No capital gains were held taxable in the year under consideration on the basis of the development agreement, and the revenue's challenge failed.

Issue (ii): Whether the addition sustained in respect of bank deposits required further interference.

Analysis: The Tribunal accepted part of the explanation regarding rental income, transfers from close relatives, and reasonable past savings, and found that only a limited balance remained taxable. The overall approach was one of partial acceptance of the explanation with consequent reduction in the addition.

Conclusion: The addition was substantially reduced and only a small balance was sustained.

Final Conclusion: The revenue's appeal was rejected, while the assessee obtained substantial relief in the cross-objection with only a minor balance addition left undisturbed.

Ratio Decidendi: A development agreement that grants only a licence to enter and develop the property, without transferring possession in the legal sense contemplated by section 2(47)(v), does not by itself trigger capital gains tax in that year; where the assessee's explanation for bank credits is partly acceptable, only the unexplained balance can be sustained.

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