TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) whether the entire consideration receivable on transfer of development rights had to be assessed in the year in which the development agreement was executed and possession was handed over, or whether income could be recognised at 25% on the project basis; (ii) whether the assessee was entitled to deduction of the cost of acquisition of the development rights or proportionate land-related cost while computing such income.
Issue (i): whether the entire consideration receivable on transfer of development rights had to be assessed in the year in which the development agreement was executed and possession was handed over, or whether income could be recognised at 25% on the project basis.
Analysis: The assessee, following the mercantile system of accounting, transferred part of its development rights to another developer and handed over possession of the relevant land. The arrangement was treated as an independent transfer distinct from the remaining development activity. Since the entire consideration became due on execution of the agreement and possession was delivered during the year, accrual was complete in that year. Under mercantile accounting, postponement of receipt does not defer accrual of income.
Conclusion: The entire consideration was taxable in the year of transfer and the assessee's plea for taxation only at 25% on the project basis was rejected.
Issue (ii): whether the assessee was entitled to deduction of the cost of acquisition of the development rights or proportionate land-related cost while computing such income.
Analysis: Once the entire transfer consideration was brought to tax in the year of transfer, the corresponding cost incurred for acquiring the transferred development rights could not be ignored. The Tribunal accepted the alternate claim to the extent of allowing the cost of acquisition of the development rights as a deductible item while computing the taxable income.
Conclusion: The assessee was entitled to deduction of the cost of acquisition of the development rights.
Final Conclusion: The transfer consideration from development rights was taxable in full in the year of transfer, but the related acquisition cost was allowable as deduction, resulting in partial relief to the assessee.
Ratio Decidendi: Where development rights are transferred independently and possession is handed over, the consideration accrues in full on execution of the transfer transaction under mercantile accounting, while the corresponding acquisition cost remains deductible in computing taxable income.
TaxTMI 
