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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-33, Mumbai [in short CIT(A)], in appeal No. CIT(A)-33/Rg.21/256/2011-12 dated 05-11-2015. The Assessment was framed by the Income Tax Officer, Ward-18(3)(3), Mumbai (in short ‘ITO') for the A.Y. 2009-10 vide order dated 29.12.2011 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in treating the development rights along with the rights to load TDR as capital asset liable to long term
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capital gain as against the claim of the assessee of business asset. Alternatively also the assessee claimed that in case the right to load TDR is held as capital asset, the same cannot be liable to long term capital gain tax. For this assessee has raised the following grounds:-
“I) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the order of the Assessing Officer as regards:
a) treatment of the development rights along with the right to load TDR as capital asset instead of business asset;
b) assessment of sale proceeds of development rights as capital gains instead of business income.
(2) On the facts and in the circumstances of the case and in law, the Ld. CITA) erred in confirming the application of See. 50C of the Act to the transfer of development rights along with loading of TDR even though such rights constituted business/trading asset and not a capital asset.
(3) Without prejudice to ground nos. I and 2. the Ld. CIT(A) has erred in adopting the Valuation report tiled by the department (through DVO) even though the objections raised by the appellant with regard to the valuation made by DVO were not correctly disposed off.
(4) Without prejudice to ground nos. 1 to 3:
a) the ld. CIT(A) has erred in adopting the valuation date of the property as 31.03.2009 as against 12.05.2008 when the Agreement
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for Sale was entered into with the developer and the entire agreed value was received.
b) the Ld. CIT(A) has even otherwise erred in not giving a direction to Id. AO to adopt the value determined by Divisional Valuation Officer (DVO) u/s 5OC of Rs. 4,43,89,000/-as sale consideration instead of Rs. 6,27.09.000/-being stamp duty value considered by Ld. AO in its assessment order.
Without prejudice to the above grounds. the Ld. CIT (A) erred
a) in confirming that no expenses have been incurred against sale of development rights even though the expenses towards cost of land and development rights is recorded in the regular books of accounts and the same is duly reflected in the Balance Sheet under the head current assets;
b) in treating the entire value computed by the Valuation Officer as Capital Gains ignoring the expenses incurred as cost of acquisition.
Without prejudice to ground nos. I and 2, the Ld. CIT(A) erred in confirming assessment of capital gains on sale of development rights disregarding the fact that the transfer was not liable for capital gains tax liability if the asset did not have cost of acquisition as held by the Apex Court in B.C. Srinivas Setty (1981) report at 128 ITR 294.
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Without prejudice to ground nos. Ito 5. on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of proportionate expenses debited in Profit & Loss A/c against the sale of development rights oven though the Ld. CIT(A) had held that no expenses have been incurred on the acquisition and improvement of development rights.
On the facts and in the circumstances of the case and in law, the Ld. ClT(A) erred in confirming addition of Rs. 1,31,742/- on account of insufficient household expenses.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs. 20,00,000/- being amount paid to MCGM. treating the same as in the nature of penalty.
10) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming disallowance of Rs. 1,17,466/- being 20% of expenses like conveyance, repairs and maintenance, printing & stationary. misc. expenses and stall welfare expenses on estimated basis even though 110 items of disallowable nature were pointed by the Assessing Officer.
11) On the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the addition of ₹3,51,808/- being 20% of vehicle expenses and telephone expenses on estimated basis even though no items of
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disallowable nature were pointed by the Assessing Officer.”
Briefly stated facts are that the assessee is engaged in the business of development and construction in the status of proprietary concerns in the name of K. S. Constructions and R.S. Developers. These properties concerns have purchased 30575 sq.mts of land bearing Survey No 267, Hissa No III (part) and C. T.S. No 610 (part) of Malad (East) from Mr. D.N. Ghosh and Ashiyana Construction on 7-02-1992 for Rs 1,13,00,000. The assessee disclosed this amount and paid to the sellers under the head Work in Progress (Currents Assets) in the Balance Sheet and profit on sale of the flats/shops constructed had been offered to tax on percentage completion method. The assessee enclosed copies of Balance Sheets for the year ending 31-03-1992 to 31-03-2000 to highlighting the land was treated as Work in Progress. The assessee entered into a Package Deal Agreement with Chitravani Co-op Housing Society Ltd (“Chitravani”) to construct flats for the society apportioning the aforesaid larger land admeasuring 11,300 sq.mts as per Agreement dated 22-10-1992. Due to certain disputes and differences between the assessee and Chitravani, who filed a suit in Bombay High Court seeking specific performance of the agreement Chitravani had thereafter joined the said D N. Ghosh and Span Construction Company also as party defendants to the suit filed.
The said suit was ultimately settled between the parties and as per the consent decree the said larger land was divided among the followings:
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The assessee subsequently got his share of the land demarcated as hereunder: -
The B1 land was developed by the assessee for Gharkul Cooperative Housing Society and possession of each flat has been handed over to the respective purchasers. The assessee has shown the proceeds of ₹ 1,90,60,625 from the sale of these flats under the head Sale of Flats in the Profit & Loss Account for the year ended 31-03-2003. The assessee prepared and got sanctioned the building plans in respect of the said B2 land into three wings A, B and C as detailed hereunder.
The assessee has shown the proceeds of the B and C Wing under the head Sales of Flats and Shops in the Profit & Loss Account for the years ended 31-03-2005 to 31-03-2008. In respect of A Wing named as Swapnakiran, the assessee had constructed ground plus three floors and sold them to various purchasers. The assessee has shown the proceeds of the said Wing under the head Sale of Flats and Shops in the Profit & Loss Account for the years ended 31-03-2007 to 31-03- 2009. Due to financial constraints faced by the assessee for purchasing the required TDR for carrying on additional construction, the remaining four floors were not constructed. The said fact is highlighted on page 9 of the
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Agreement. The said fact was also highlighted in the agreement entered into with the individual purchasers. As per TDR rules the existing then, the recipient B2 land was entitled to 3906.48 sq.mts of TDR. As per an architect’s certificate only 2400 sq.mts. of TDR out of the allowable 3905.48 sq.mts was required for construction of the balance four floors and the annexes portion. As stated, earlier due to the financial constraints, the assessee was not able to carry out and complete the development and construction on the aforesaid B2 land and was desirous of granting development rights in respect utilising the permissible TDR upon the said land to any developer for carrying and completing the scheme of construction of fourth to seventh floor of A Wing and the entire A Wing annexe. The assessee thus entered into an agreement with Midland Developers for selling his residual development rights to the extent of 2400 sq. mts for Rs 2,20,00,000 to construct the fourth to seventh floor of the A Wing and the annexe.
It was claimed by the assessee that the decision to transfer the residual development rights was purely a business decision and the agreement entered into was incidental and consequential to the business of the assessee as it would have lead to tremendous loss of goodwill and reputation as a builder, if he were not to complete the balance floors (fourth to seven) as per the approved plans and hand over the possession to the purchasers of flats in the A Wing- Swapnakiran - Accordingly the sale of residual development rights arises out a business transaction. It was also explained that the assessee’s current liabilities as on 31-03-2008 i.e. just before the date of transfer of these rights stood at ₹ 4,48,72,296/-. The assessee has used the proceeds of the sale of the residual development rights to pay off part of these liabilities. The assessee’s current liabilities as on 31-03-2009 after utilising the proceeds of development rights were Rs. 2,63,11,140/-. The assessee had never purchased any land as capital asset and has always purchased land as stock in trade as is evident from' the copies of the Balance Sheets of the
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assessee enclosed in the assessee’s paper book for the past several years.
Further, it was stated that the AO has considered the residual development right as a capital asset and according invoked the provisions of section 50C by substituting the value adopted by the stamp authorities Rs.6,27,09,000 as the consideration and accordingly computed capital gains. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after considering the submissions of the assessee dismissed the issues regarding the assessment of TDR rights as business income and also rejected the claim of the assessee of not assessing the TDR rights as capital gains liable to tax.
For this CIT(A) observed as 5.1 to 5.19 as under:-
“5.1 The appellant's 1st and 4thgrounds of appeal are that the transfer of rights to load TDR being business receipts, provisions of section 50C of the Act will not be applicable. Moreover, taxing rights to load TDR as Long Term Capital Gain is not possible when there is no cost involved I find essentially three questions are involved in these grounds of appeal, which needs to be answered,
(i) Whether development rights associated with land/associated properties are capita! assets?
(ii) Whether development agreement involves transfers?
(iii) Whether Sec. 50c is applicable on such transfers?Whether development rights associated with land/ associated properties are capital assets?
5.2 Capital assets' as defined in tub-section (14) of Section 2 of Income Tax means Property' of any
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kind held by the assessee whether or not connected with his business or profession. It excludes certain assets such as agricultural land, stock in trade, personal effects etc. which are specifically mentioned in the provision. The definition is wide enough to include all tangibleor intangible assets which are definable and identifiable, which have value and which can be owned/ transferred. It also includes aggregate of rights which carry value and which can either be exploited or transferred to other. Hon'ble Bombay High Court in the case of Commissioner of Income tax vs. Vijay Flexible Containers 186 ITR 693(Bom.) has heldthat the right to obtain conveyance of immovable property is a capital asset So is with other rights attached to land. Land Is an asset and so are the rights attached to the land. Ownership of land carries with it bundle of rights attached to It of which the right of development is an important one. Such rights can be exploited by the owner himself or assigned to some other person for exploitation. A case in point is when the owner of reserved land surrenders the land to the Authority, such rights of development are detached from the land itself and while such reverse land is transferred to the government, the development Fights are retained with the owner to be used on some other piece of land (receiving plot) as per the provisions of Development Control Regulations. The right so detached are transferable. Development rights emanate from theownership of land and being detachable and transferable have all the requisites of 'property' and as such of 'capital asset’.
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5.3 Similar view was taken in I.T.O. 19(3) vs. Sea Mist Co-op.Hsg.Soc. Ltd. (ITANo.1475/M/07) where a plea was taken based on the reasoning of no cost, The Hon'ble Tribunal observed that TDRs emanates from and form part of the land owned by the assessee. The cost incurred in acquisition of land would support the cost of acquisition of rights which are related to the land. Therefore, the development right does have a cost of acquisition which can be set off in the computation of capital gains income. The ITAT drew support from the decision inShakti Insulates Wires (infra) where such rights were held to be capital assets for purposes of capital gains.
5.4 In Shakti Insulated Wires Ltd. vs. Joint Commissioner of Income-tax (Mumbai) 087 ITD56 an argument was taken that Development Rights are not 'capital assets and their conversion into stock-in-trade does not attract provisions of section 45(2). Dismissing the pea, the ITAT held that property, taken into its conspectus all the rights associated with the land which will essentially include the development rights which were duly identified by D.C. Regulations. The I.T.A.T. relied upon the decision of Karnataka High Court in the case of Syndicate Bank Ltd. (155 ITR 681) and Bombay High Court in Vijay Flexible Containers (supra) where right to obtain conveyance of the property was held to be a capital asset. The decision in Shakti Insulated was followed by the ITAT Mumbai in ITO vs. SeaMist CHS Ltd.(ITA No.1475/M/07 - A.Y.2003-04) and it was held thatdevelopment rights are capital assets having cost of acquisition.
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5.5 The appellant has relied upon the judgments in the cases of Jethalal D Mehta vs DCIT (2005] 2 SOT 422 [Mum], Lotia Court Co-operative Housing Society Ltd. (20081 12 DTR[Mum] 396 and New Shailaja CHS vs ITO 36 SOT 19 [2010] [Mum). In the case of JethalalD Mehta vs DCIT (supra) and other cited cases, Hon'ble ITAT, Mumbai has held that such rights are not capital assets onthe ground that there is no cost of acquisition of such rights and as per the rationof the decision of the Hon’ble Supreme Court in CIT vs B C Srinivas Setty (1981) 128 ITR 294. In the fact of these cases, the transfer envisaged was only of TDR FSI and the assessee's entitlement to load these TDR on these lands. The Hon'bIeITAT therefore considered the issue on these facts only.
5.6 However, the decisions in the preceding paragraphs are not applicable to the fact of the instant case as the original FSI on the aforesaid B2 land was transferred to MIs Midland Developers for development and construction of fourth to seventh floor of A Wing and the entire A Wing annexe. Thus, developmentrights in respect utilising the permissible TOR are attached with the said land is thesubject mattertransfer in the present case. In furtherance to this objective, the appellant entered into an agreement with Ws Midland Developers for selling hisresidual development rights to the extent of 2400 sq. mts for Rs 2,20,00,000 to construct the fourth to seventh floor of the A Wing and the annexe. Moreover, there is a cost of acquisition with respect to TDRs being transferred in the present
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case, which were not there in the cases relied upon by the appellant.
5.7 In another decision of Mumbai ITAT in DCIT vs Jai TrikamamdRao [2014) 41 taxmann.com 453 (Mumbai-Trib) where the tribunal held where the developer had the right to sell the flats by utilizing additional FSI, it is a clear case of transfer envisaged both under capital gains and Transfer of Property Act. The Tribunal further held that the existing FSI as well as additional FSI have their genisis and primary roots in the plot of land and in the plot of land and in context of construction, the cost of FSI assigned or transferred need to be determined.
5.8 Another bench of ITAT, Mumbai in Chiranjeev Lai Khannavs ITO (ITA no. 6170/Mum/2008) has extensively discussed and distinguished all the cases relied upon by the appellant. In all these cases which were cited before the Bench to plea that no capital gain arises, the ITAT observed that the development agreement involved construction of additional floors/modifications on the existing structure which remained the property of the owner and what was transferred was right to additional FSl with authority to construct.
5.9 Relying upon the aforesaid judgments and the facts of the instant case, it is very clear that residual development rights (TOR) are clearly capital assets within the meaning of subsection (14) of Sec. 2 of the I.T. Act as having their genesis and primary root in the land and associated structure
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and having cost of acquisition being acquired from market.”
Aggrieved, now assessee is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. The assessee an individual is engaged in the business of construction. In the year 1992 the assessee purchased a piece of land, which was developed by the assessee in various stages. The entire FSI which was 1:1 was utilized by the assessee. The profit was accounted for by the assessee on percentage computation method. Out of the total land that was purchased by the assessee he had to surrender 1277.30 sq meter of land to the Municipal Corporation of Greater Mumbai for road. For this the assessee was granted additional FSI which could be used by purchase of Transferable Development Right. But the assessee had huge debts and did not have resources to purchase the TDR and therefore it was sold to another developer for a sum of Rs. 2,20,20,000/-. The assessee was a builder and developer. The land purchased by the assessee was stock-in-trade. Consequently, the FSI that allowed and used was also his stock-in-trade. Hence, the additional FSI for which the permission was given by MCGM was also stock-in-trade only. Accordingly, this FSI was sold and additional FSI sold for was accounted for as business income. But the AO treated the same as a capital asset and the sale proceed was considered as Income from Capital Gains. Since, it was treated as capital gains he also invoked the provisions of section 50C of the Act. The AO took the value determined by the stamp duty authority, who valued the TDR at Rs. 6,27,09,000/- Accordingly, the AO charged this whole amount to capital gains tax. When the matter was taken to the CIT (A), at his instance the matter was referred to the Departmental valuer, who valued this right at Rs. 4,43,89,000/-.
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We find from the arguments of the assessee that the assessee has been in the business of construction and the cost of land which was acquired by the assessee for construction was shown under the head work-in-progress under the main head Current Assets. The profit on sale of flat / shops constructed had been offered to tax on percentage completion method. The copies of Balance Sheet for the year ending 31 March 1992 to 31 March 2000, showing the land under the head 'work-in- progress" are filed by the assessee in its paper book at Pages 37-57. The assessee carried out the construction in various stages. Entire project was finished in the accounting year relevant to assessment year under consideration. The full FSI allowed to the assessee was utilized by the assessee. However, the assessee had to hand over land admeasuring 1277.30 sqmt to the MCGM for D. P. Road in lieu of which the assessee became entitled to FDR. But this TDR could be used for construction only after purchasing the TDR. The relevant portion of the agreement to transfer the TDR which reads as under would make the position clear (Page 9 of the agreement, Page 78 of the assessee’s Paper book):
"AND WHEREAS since the permissible FSI of 1:1 in respect of the said B2 land is nearly consumed by the Owner/Vendor for the existing construction of A, B & C Wings of the building standing as on date upon the said land, the Owner/Vendor has to acquire and purchase TDR for carrying out and completing the remaining permissible construction upon the said land as per the rules and regulations of the local authority i.e. MCGM, by getting the existing sanctioned building plans revised/renewed from the local authority."
But due to financial constraint and a lot of liabilities on the assessee, the assessee was not in position to purchase the required TDR. Therefore, he transferred the TDR to the extent of 2420 sq m. for a consideration of
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Rs. 2,20,20,000/- to another developer. The right to load TDR was included in the stock-in-trade or the closing stock. Since it was a part of the closing stock, its character was also stock-in trade only. Neither the land nor the residual right by way of Transferable Development Right can have any other character other than a business asset and it cannot be treated as capital asset.
Here, we want to refer the decision of Hon’ble Bombay High Court in the case of CIT vs. Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 246 Taxman 274 (Bombay) wherein, it is held that since the plot was kept as stock in trade, the provisions of section 50C of the Act will not apply. The Hon’ble Bombay High Court held as under:-
“(f) It is self evident from reading of section 50C of the Act that it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application is only limited to computation of income chargeable under the head 'Capital gains' as is evident from specific reference in sub-section (1) of section 50 of the Act to section 48 of the Act i.e. mode of computation of capital gains. In fact section 50C of the Act as observed by the impugned order is placed as part of the Chapter IV-E under the head 'capital gains', it can only govern the valuation of the property to determine capital gains and cannot govern valuation of transfer of assets (other than a capital asset) i.e. stock in trade. This view is further strengthened by the fact that section 43CA has been introduced into the Act w.e.f. 1st April, 2014 which governs taking of full value of consideration for transfer of assets other than capital assets on the basis of stamp duty valuation. This section 43CA of the Act finds a place as a part of Chapter IV-D - Profits and gains of business or profession. Therefore, with effect from 1st April, 2014 the stamp duty valuation of assets sold could be taken as full value of consideration. Our above view that section 50C of the Act has no application to value stock in trade is also a view taken by Allahabad High Court in CIT v. Ken Construction and Colonizers (P.) Ltd. [2012] 208 Taxman 478/20 taxmann.com 381. Similarly the Madras High Court in CIT v. Thiruvengadam Investments (P.) Ltd. [2010] 320 ITR 345 has also held that section 50C of the Act cannot be invoked to arrive at full consideration of sale of business asset. We see no reason not to adopt the views of the above two High Courts to the present facts.
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In view of the above, decision of Hon’ble Bombay High Court in the case of Neelkamal Realtors & Erectors India (P.) Ltd. (supra), we are of the view that th epurchase and sale of TDR was ancillary and incidental to business activity and accordingly, the same cannot be treated as capital asset. It was not correct on the part of the department to treat the same as capital asset rather it is business asset. However, we want to clarify that a provision to section 50C of the Act has been brought in for assets other than capital assets by way of section 43CA of the Act by the Finance Act 2013 with effect from 01.04.2014 i.e. for and from AY 2014- 15. In the present case before us, the assessment year involved 2009-10. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same.
As regards to the alternative issue, whether the TDR was a capital asset or not and consequently, additional FSI sold by assessee is liable to capital gains tax or not. We find from the arguments of the assessee that the origin of TDR is the process of land acquisition in urban areas for public purposes specifically for road widening, parks, playgrounds and schools, etc, is complicated, costly and time-consuming. In order to minimize the time needed and to enable a process, which could be advantageously put into practice to acquire land for reservation purposes, the concept of TDR comes in handy. In this context, another note-worthy aspect is whether Development Rights Certificate (DRC) is transferable / inheritable. As already stated, if the owner of any land which is required for road widening or development of parks, playgrounds, civic amenities, etc, such land shall be eligible for the award of Transferable Development Rights (TDRs). Such award will entitle the owner of the land, rights in the form of Development Rights Certificate (DRC), which he may use for himself for transfer to any other person. Accordingly, it will be appropriate to refer to the Development Control Regulations, 1991, Greater Bombay. Rule 34 of the aforesaid regulations defines TDR, which stands for Transferable Development Rights. As per rule 34, in certain
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circumstances, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of the land in the form of TDRs. Whether the receipt on transfer/sale of TDRs is liable to capital gains tax. We are of the view that surrender of land for the acquisition of TDR would be completely exempt, because in case of acquisition of TDR, the land which is transferred is different and TDR right received is different, for which no cost of acquisition can be attributed and therefore, when the TDRs are sold, there is no capital gains tax liability. In this regard, the Supreme Court in CIT Vs B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) has held that all transactions encompassed by section 45 of the Act must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 of the Act to be the subject of the charge. What is contemplated by section 48(ii) of the Act is an asset in the acquisition of which it is possible to envisage a cost; it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. None of the provisions pertaining to the head “Capital gains” suggests that they include an asset in the acquisition of which no cost at all can be conceived. When goodwill generated in a new business is sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. Further, the date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gain. But in the case of goodwill generated in a new business it is not possible to determine the date when it comes into existence. Another important judgment delivered by the Supreme Court in this context is CIT Vs D. P. Sandhu Bros. Chembur P. Ltd or Union of India Vs Cadell Weaving Mills Co. P. Ltd [2005] 273 ITR 1 (SC). It was held in this case that – (i) The tenancy right was a capital asset and surrender of tenancy right was a transfer and the consideration received thereof was a capital receipt, within the meaning of section 45 and 48(ii)
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of the Act. The amendment to section 55(2) took effect from 1.4.1995 and applied in relation to assessment year 1995-96 and subsequent years. Therefore, till that amendment in 1995, the law was that if the cost of acquisition could not, in fact be determined, the transfer of such capital asset would not attract capital gains tax. In this regard, it will also be relevant to refer to the provisions of section 55(2)(a) of the Act, which are reproduced as follows :
“55. Meaning of "adjusted", "cost of improvement" and "cost of acquisition". (2) For the purposes of sections 48 and 49, "cost of acquisition",— (a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours,— (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil ;”
From the aforesaid provisions of section 55(2)(a) of the Act, it may be seen that the same do not include Transferable Development Rights (TDRs). Therefore, the sale of TDR will not be liable to capital gains tax. The case law of Hon’ble Bombay High Court in the case of CIT Vs Sambhaji Nagar Co-op. Hsg. Society Ltd. [2015] 370 ITR 325 (Bom.) support the view that there will be no capital gains tax on transfer/sale of TDR. There are a number of legal precedents which support the view that there will be no capital gains tax on the transfer / sale of Transferable Development Rights (TDRs). Hon’ble Bombay High Court noted the facts that the assessee-society, with the promulgation of Development Control
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Rules (DCR) for Greater Mumbai, 1991, acquired the right of putting up additional construction through Transferable Development Rights (TDR). Instead of utilizing the right itself, the assessee decided to transfer the right to a developer for a consideration. The AO, for the assessment year 2007-08, held that the assessee transferred a valuable right, which was a capital asset under section 2(14) of the Ac. The right created by the DCR, 1991, attached to the land owned by the assessee which was acquired for a value. Its title or ownership of the plot enabled the assessee to consume this floor space index (FSI)/transferable development right. Under these circumstances, the AO held that this was a transfer of capital asset held by the assessee, which was chargeable to tax. This was confirmed by the CIT(A). The Tribunal, however, held that the sale of transferable development rights did not give rise to any capital gains chargeable to tax. It was concluded by the Tribunal that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules, making the assessee eligible to additional FSI. The land and the building earlier in the possession of the assessee continued to remain with it. Even after the transfer of the right or the additional FSI, the position did not undergo any change. The Revenue could not point out any particular asset as specified in section 55(2) of the Act. On appeal by the Revenue to the High Court, dismissing the appeal, it was held that the Tribunal was justified in concluding that the additional FSI/TDR which was generated by the plot/property/land and came to be transferred under a document, in favour of the purchaser, would not result in the gains being assessed to capital gains. Accordingly, the conclusion of the Tribunal was imminently possible on the facts and in the light of the legal position as noted by the language of section 55(2) of the Act. In effect it was held by the High Court that an asset which is capable of an acquisition at a cost would be included in the provisions pertaining to the head “Capital gains”, as opposed to assets in the acquisition of which no cost at all can be conceived.
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In view of the above position we are of the view that if the cost of acquisition of an asset cannot be determined, the consideration received by reason of surrender of transfer of such an asset cannot be subjected to capital gains tax. Respectfully, following Hon’ble Bombay High court in the case of Sambhaji Nagar Co-op. Hsg. Society Ltd. (supra), we allow this alternative ground of the assessee also.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 13-06-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 13-06.2018 kao kI ga[- .
Sd/- Sd/- (NK PRADHAN) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 13-06-2018 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI