Transferable development rights are distinct regulatory rights, and assignment proceeds may escape capital gains tax where acquisition cost is unascertainable.

Transferable development rights are a distinct regulatory entitlement, separate from the underlying land or building, and their assignment is not taxed as capital gains where no ascertainable cost of acquisition can be identified. Expenditure on the leasehold plot, construction, or municipal approvals cannot be treated as the cost of acquiring those rights, because the rights arise under the development control regulatory scheme rather than from that expenditure. The article notes that the principle against charging capital gains on an asset with no identifiable acquisition cost was applied, and the prior special bench view relied on by the revenue was regarded as no longer sustainable.

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Issues: Whether the consideration received on assignment of rights to receive and utilise transferable development rights was liable to capital gains tax, and whether the cost of acquisition of such rights could be identified by reference to the cost of the plot, building, or approvals obtained in relation to the property.

Analysis: The rights transferred were not the land or building, but a distinct right arising from the development control regulations to receive and apply transferable development rights on a receiving plot. Those rights came into existence by operation of the regulatory scheme and not by reason of the assessee's expenditure on acquiring the leasehold land, constructing the building, or obtaining municipal approvals. The expenditure incurred on the plot and construction could not, therefore, be treated as the cost of acquisition of the transferred rights. The principle that capital gains cannot be charged where the transferred asset has no ascertainable cost of acquisition was applied, and the earlier special bench view relied upon by the revenue was treated as no longer sustainable.

Conclusion: The receipt on assignment of the transferable development rights was not taxable as capital gains in the hands of the assessee, and the addition was directed to be deleted.

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