The Income Tax Appellate Tribunal (ITAT), Mumbai has held that sale of transferable development rights does not attract capital gains tax since the cost of acquisition for the same does not exist.
consisting of members Pavan Kumar Gadale (Judicial Member) and Prashant Maharishi (Accountant Member), has ruled that
The assessee challenged the re-assessment order wherein the AO had ruled that since transferable development rights (TDRs) arising out of an existing land is an immovable property, the transfer of such TDRs amounted to transfer of a long term capital asset, and hence the Assessee was liable to be taxed for the consideration received on them under the head “Capital gains.”
The Assessee secured relief from the Commissioner (Appeals). The Revenue, therefore, approached the Tribunal challenging the first appellate order.
The departmental representative before the ITAT contended that a capital asset under Section 2(14) of the Act included not only physical property but also rights, title or interest attached to it and, therefore, the consideration received by the Assessee for transfer of TDRs gave rise to capital gains that was chargeable to tax under Section 45 of Act. The Assessee submitted that since no cost of acquisition could be computed with respect to the TDRs, the consideration received by him on the transfer of TDRs was a capital receipt and was not chargeable to tax under Section 45.
The ITAT, relying on the judgment of Bombay High Court in CIT v. Shambhaji Nagar Cooperative Housing Society Ltd. (2014), held that the sum received on transfer of TDRs which does not have any cost of acquisition cannot be charged to tax under the head “Capital gains”. In the case of Shambhaji Nagar Cooperative Housing Society, the Bombay High Court had observed that a capital asset that is capable of having an acquisition cost would fall within the purview of Section 45, however an asset whose acquisition cost cannot be conceived cannot be taxed under Section 45. In that case, the Bomaby High Court had ruled that since the TDR was generated by the property owned by the assessee itself, no cost of acquisition could be determined and hence the consideration received on its transfer could not be assessed as a Capital gain.
The ITAT, noting that the case of the Assessee was squarely covered by the case of Shambhaji Nagar Cooperative Housing Society, held that the receipts against the sale of TDR were not chargeable to capital gain tax, and dismissed the appeal of the AO.
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