Overriding contractual obligation prevents development-rights compensation from accruing to the landholder when the developer holds the commercial entitlement.

Compensation attributable to development rights transferred under a pre-existing Development Agreement may not accrue as taxable income to the landholder where the developer holds the exclusive commercial interest and corresponding entitlement. The note explains that legal title alone does not establish entitlement to the full compulsory-acquisition compensation when the developer funded acquisition, assumed commercial risks and received development rights under a genuine, consistently implemented agreement. Transfer of the relevant compensation is characterised as discharge of an overriding contractual obligation rather than application of the landholder's income. Taxing the same receipt in both hands would result in double taxation where the developer has offered it to tax, and consistent treatment of similarly placed entities supports deletion of the addition.

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Issues: Whether compensation attributable to development rights, transferred by the assessee to the developer under a pre-existing Development Agreement, was taxable in the assessee's hands.

Analysis: The binding Development Agreement conferred exclusive development and commercial rights upon the developer, which had funded the land acquisition and assumed the associated commercial obligations and risks. Legal title in the assessee did not by itself establish entitlement to the entire economic benefit of compulsory-acquisition compensation. The transfer represented discharge of an overriding contractual obligation, since the commercial interest and corresponding entitlement to the amount attributable to development rights vested in the developer. The arrangement was genuine, consistently acted upon, and was neither shown to be sham nor colourable. The developer had also offered the receipt to tax and its assessment had been accepted; taxing the same amount again in the assessee's hands would produce impermissible double taxation in a revenue-neutral transaction. Consistent treatment of similarly placed group land-holding entities also supported deletion of the addition.

Conclusion: The amount transferred to the developer pursuant to the Development Agreement did not accrue as taxable income to the assessee; the addition was deleted in favour of the assessee.

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