Capital gain

In your case, it is just a matter of transfer of Income out of sale proceeds of flats to the developer and I can conclude that there is no registration process carried out to register constructed flats in the name of developer. So Income arises from this activity is taxable as Income from Capital gain in the hands of Land owner and as Business Income in the hands of developer. In your case as Developer accepts 40% of sale proceeds of flats as Construction fee, it is cost of acquisition to Land owner for 100%Flats and deduct above cost along with Land cost from Sale proceeds of 100% Flats and capital gain arise there on to be apportioned among four Co-owners. As developer keep track of his construction cost, Such cost need to be deducted from 40% Flat sale proceeds to compute Business Income, Thank you.

Since the land was inherited, the cost of acquisition for the four heirs shall be the cost of acquisition for the previous owner of their father. The capital gain arises at the time of sale and not at the time of signing the development agreement with the developer.