Development rights consideration taxed as capital gains; residuary income head rejected and section 54EC relief allowed.

Receipt for grant of development rights under a redevelopment agreement was characterised as consideration for transfer of a capital asset, because development rights form part of the bundle of rights in immovable property. The residuary head of income could not be invoked where the receipt was directly referable to the specific head of Capital Gains, and the payer's accounting treatment did not change the recipient's tax character. The receipt was therefore taxable under Capital Gains, not Income from Other Sources, and exemption under section 54EC was to be allowed in accordance with law.

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Issues: Whether the amount received under a redevelopment agreement for grant of development rights was chargeable under the head "Capital Gains" or under the head "Income from Other Sources", and whether exemption under section 54EC was consequentially available.

Analysis: The agreement recorded grant of development rights to the developer for consideration, while the owners retained only certain rights in the redeveloped property. Development rights are valuable rights forming part of the bundle of rights in immovable property and constitute a capital asset. The receipt was contractual consideration directly linked to the rights parted with by the assessee and could not be treated as a casual or independent payment. The residuary head under section 56 could not be invoked where the receipt was referable to the specific head "Capital Gains". The accounting treatment adopted by the payer did not control the tax character of the receipt in the hands of the recipient.

Conclusion: The receipt of Rs. 50,00,000/- was held to be consideration for grant or transfer of development rights and was chargeable under the head "Capital Gains", not "Income from Other Sources". The assessee's claim for exemption under section 54EC was directed to be allowed in accordance with law.

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