2008 (12) TMI 442 - AT - Income Tax

Tribunal Rules No Capital Gains Tax on Additional FSI Transfer Due to Lack of Acquisition Cost, Citing Legal Precedents.

The Tribunal partially allowed the appeal, ruling in favor of the assessee by accepting the argument that no capital gains tax should be levied on the ... No cost not capital gain concept - applicability or not - Computation of capital gain - Cost of acquisition '' Nil ' - taxability of receipt of sale of additional FSI received - CIT(A) confirmed the view of the ld AO that no cost no capital gains theory is not applicable to the applicant’s case - Assessee’s contention that the right to transfer by the assessee did not have any post of acquisition and hence the provisions of Chapter IV-E fail, did not find favour with the AO. HELD THAT:- We find that the assessee became entitled to the additional FSI of around 11,000 sq. ft. due to its land holding. The assessee transferred this entitlement for a consideration to M/s. D.K. Builders. The items of capital assets specified in section 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However if the assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in section 55(2) then the judgment of the Hon’ble Supreme Court in B.C. Srinivasa Setty [1981 (2) TMI 1 - SUPREME COURT] shall apply and no capital gains would be charged. It is abundantly clear 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 building earlier in the possession of the assessee continued to remain with it as such even after the transfer of the right to additional FSI. The ld DR could not point out any particular asset as specified in sub-section (2) of section 55, which would include the right to additional FSI. No capital gains can be charged on the transfer of the additional FSI by the assessee for sale consideration for the reason that it has no cost of acquisition. Our view is fortified by the order of the Mumbai Bench of the Tribunal in Jethalal D. Mehta [2005 (1) TMI 595 - ITAT MUMBAI]) which was also cited before the ld CIT(A). No material has been brought to our notice to show that the said order has been modified or reversed by the Hon’ble High Court. Further the ld DR could not point out any contrary decision. Respectfully following the precedent, we accept this ground of appeal. The ld AR did not press other grounds of appeal, which are hereby dismissed. Hence, the appeal is partly allowed. Issues:Interpretation of the 'no cost no capital gains theory' in relation to the sale of Transfer Development Right (TDR) under the Development Control Regulations Act, 1991.Analysis:Issue 1: Interpretation of the 'no cost no capital gains theory'The appeal revolved around the application of the 'no cost no capital gains theory' to the sale of Transfer Development Right (TDR) by a cooperative housing society. The Assessing Officer computed capital gains on the sale of additional Floor Space Index (FSI) by the assessee, despite the contention that the right transferred did not have any cost of acquisition. The Tribunal examined the concept of TDR introduced in Mumbai under the Development Control Rules, 1991, where the FSI of a plot of land is separated and allowed to be transferred. The Tribunal noted that the assessee became entitled to additional FSI due to its land holding and transferred this entitlement for a consideration. The Tribunal emphasized that for capital gains computation, there must be a sale consideration resulting from the transfer of a capital asset, along with a cost of acquisition. Citing the Supreme Court's decision in CIT v. B.C. Srinivasa Setty, the Tribunal clarified that a transfer of a capital asset without any cost of acquisition does not attract capital gains tax under Section 45. The Tribunal differentiated between assets with a cost of acquisition at nil under Section 55(2) and assets with no ascertainable cost of acquisition. In this case, as the right to additional FSI had no cost of acquisition, the Tribunal held that no capital gains could be charged on its transfer.Issue 2: Application of Legal PrecedentsThe Tribunal considered legal precedents, including the decision in Jethalal D. Mehta v. Dy. CIT, to support the assessee's contention that no capital gains should be charged on the transfer of additional FSI due to the absence of a cost of acquisition. The Tribunal noted that the Departmental Representative failed to identify any specific asset under Section 55(2) that would include the right to additional FSI. Relying on the precedent and finding no contrary decision or modification of the cited order, the Tribunal accepted the ground of appeal raised by the assessee. The Tribunal's decision was based on the principle that when a capital asset has no cost of acquisition and does not fall within the categories specified in Section 55(2), no capital gains tax should be levied on its transfer.Conclusion:The Tribunal partially allowed the appeal, ruling in favor of the assessee by accepting the ground related to the non-taxability of capital gains on the transfer of additional FSI. The decision was grounded in the interpretation of the 'no cost no capital gains theory' in light of the specific circumstances of the case and relevant legal provisions, emphasizing the importance of a cost of acquisition in determining capital gains tax liability on the transfer of capital assets.