Timing of capital gains on land transfer turns on actual transfer, not book entries, and long-term capital gain treatment was accepted.

Ownership and effective possession of the land remained with the assessee until a later settlement and discharge of liability, because the earlier development arrangement was limited to construction and could not be fully implemented under the applicable transfer restrictions. On these facts, the transfer was held to have materialised only in the relevant assessment year, and the Assessing Officer's addition was deleted. The assessee's treatment of the transaction as a long-term capital gain with indexation was accepted, since book entries could not change the real character or timing of the taxable event.

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Issues: Whether the addition made by the Assessing Officer on account of capital gains arising from transfer of land was taxable in the relevant assessment year and whether the assessee was entitled to indexation and treatment of the transaction as long-term capital gain.

Analysis: The land was acquired in the assessee's name and the arrangement with the developer was found to be incapable of full implementation because of the statutory restriction on transfer of agricultural land to a non-Himachali. The earlier collaboration arrangement was treated as only permitting development and construction, while ownership and effective possession remained with the assessee. The record showed that the assessee developed part of the land, retained the balance as a fixed asset, and later transferred the remaining land in discharge of an outstanding liability pursuant to the subsequent settlement and arbitral arrangement. The mere accounting treatment could not change the real character or timing of the transaction. On these facts, the transfer materialised in the relevant year and the assessee's computation of long-term capital gain was accepted.

Conclusion: The addition made by the Assessing Officer was rightly deleted, and the issue was decided in favour of the assessee.

Ratio Decidendi: Where ownership and effective transfer of land remain with the assessee until a later settlement or discharge of liability, capital gains arise only in the year in which the transfer actually materialises, and book entries cannot alter the timing or character of the taxable event.

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