Transfer of Development Rights Does Not Attract Service Tax as It Amounts to Transfer of Immovable Property: CESTAT [Read Order]
The tribunal referred to judicial precedents, including the Bombay High Court and other Tribunals, which held that benefits arising from land, including transferable development rights (TDR), constitute immovable property.
The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT) held that the transfer of development rights by the assessee did not attract service tax, as it amounted to the transfer of immovable property.
Genius Propbuild Pvt. Ltd.,appellant-assessee, was registered with the Service Tax Authorities for various services, including ‘rent-a-cab scheme,’ ‘operator service,’ ‘security detective agency service,’ ‘construction services’ excluding residential complexes, construction of residential complexes, contract services, and other taxable services.
The assessee, as the landowner, had transferred Land Development Rights to M/s. GRJ Developers and Distributors under a Collaboration Agreement dated March 20, 2014, to govern the construction and development of the land, along with the selling rights.
The Department, based on the audit report, alleged that the assessee earned income from the ‘sale of development rights,’ which fell under Section 65(B)(44). It argued that the transfer did not involve the transfer of land title as required under Section 65(B)(44)(a)(i), and only development rights were transferred.
Consequently, the assessee was held liable for service tax. A show-cause notice dated November 11, 2016, demanded Rs. 39,55,200 with interest and penalty, which the Adjudicating Authority confirmed. The assessee’s subsequent appeal had been dismissed, leading to the present appeal.
The issue was whether the transfer of development rights counted as a service under ‘sale of development rights’ and whether the appellant was required to pay service tax on it.
The two member bench comprising Binu Tamta(Judicial Member) and P.V.Subba Rao (Technical Member) noted that the Bombay High Court in Chheda Housing Development Corporation vs. Bibijan Shaikh Farid had held that benefits arising from land, including transferable development rights (TDR), constituted immovable property under Section 3(26) of the General Clauses Act, 1897.
Similarly, in DLF Commercial Projects Corporation vs. Commissioner of ST, Gurugram, the Chandigarh Bench of the tribunal held that the transfer of development rights was immovable property and not liable to service tax under Section 65(B)(44) of the Finance Act, 1994.
It observed that when a landowner transferred development rights to a developer, the developer gained the right to develop the land, sell the developed property along with the undivided interest in the land, and collect payments from buyers. The undivided interest in the land effectively transferred in return for the consideration paid for development rights, placing the transaction outside the definition of “service.”
The tribunal also referred to decisions of the Allahabad High Court in Bahadur & Ors. vs. Sikandar & Ors. and the Bombay High Court in Sadoday Builders Pvt. Ltd. vs. Joint Charity Commissioner, Nagpur and Others, which had held that transferable development rights were immovable property.
Applying these principles, the appellate tribunal concluded that the collaboration agreement’s purpose was the transfer of land, which fell outside the service tax provisions.
As a result, the tribunal set aside and quashed the impugned order and allowed the appeal.
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