FSI/TDR transfer treated as capital gains, but no tax arose because the development rights had no cost of acquisition.

Transfer of FSI/TDR or development rights under a development agreement is treated as a transfer of a capital asset and falls under the head capital gains rather than income from other sources. The Tribunal's reasoning was that such rights arise from the land itself, even where the land remains with the owner, and therefore the receipt is not mere compensation. However, because no ascertainable cost of acquisition was attributable to the transferred rights, capital gains could not be computed and no capital gains tax was payable on the transaction.

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Issues: Whether consideration received for transfer of FSI/TDR under a development agreement was assessable as capital gains or as income from other sources, and whether no capital gains tax could be levied for want of cost of acquisition.

Analysis: The assessee granted the developer the right to utilise part of the floor space index and development potential of the land while the land itself remained with the assessee. The transfer was treated as a transfer of a capital asset, namely the development rights/FSI-TDR, and not as a mere receipt of compensation taxable under other sources. The Tribunal followed earlier decisions holding that such development rights arise from the land and that the assessee had not incurred any ascertainable cost of acquisition in respect of the transferred rights. In the absence of cost of acquisition, capital gains could not be computed, although the transaction remained within the capital gains head.

Conclusion: The receipt from transfer of FSI/TDR was taxable, if at all, under the head capital gains and not as income from other sources, but no capital gains tax was payable because the transferred asset had no cost of acquisition. The issue was decided in favour of the assessee.

Ratio Decidendi: Transfer of development rights or FSI/TDR is a transfer of a capital asset falling under the capital gains head, but where the asset has no cost of acquisition, no taxable capital gain can be computed.

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