Transfer of development rights not taxable as capital gains where cost of acquisition could not be determined

Compensation received for transfer of development rights was held not chargeable to capital gains tax because the rights were not an independently acquired capital asset with an ascertainable cost of acquisition. Applying the principle that section 45 does not operate where cost of acquisition cannot be determined, the Tribunal found that the receipt could not be brought to tax as capital gains and the addition was unsustainable.

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Issues: Whether compensation received for transfer of development rights was chargeable to tax as capital gains.

Analysis: The agreement showed that the assessee had parted with development rights in favour of the developer. However, the Tribunal noted that the right involved was not an independently acquired capital asset with an ascertainable cost of acquisition. Relying on earlier Tribunal decisions and the principle that where the cost of acquisition cannot be determined section 45 does not apply, the receipt could not be brought to capital gains tax.

Conclusion: The receipt on transfer of development rights was not taxable as capital gains and the addition was not sustainable.

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