Transferable development rights with no ascertainable acquisition cost fall outside capital gains computation under the tax code.

Transfer of transferable development rights was treated as a transfer of a capital asset, but the receipt was not taxable as capital gains because the right had no ascertainable cost of acquisition. The land and existing structure could not have their cost spread over or attributed to the later-acquired development right, so the computation mechanism under section 48 failed. The analysis followed precedents holding that, where no cost can be assigned to the transferred right and the statute does not deem cost to be nil, the capital gains charge cannot be applied to the receipt.

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Issues: Whether the consideration received on transfer of transferable development rights in respect of the assessee's land was chargeable to tax as capital gains, and whether the computation mechanism could be applied when no cost of acquisition could be ascribed to the transferred right.

Analysis: The right to use and assign TDRs arose to the assessee by virtue of the development regulations and was distinct from the land and building retained by the assessee. Although the transfer of such right amounted to transfer of a capital asset, the right itself had no ascertainable cost of acquisition. The cost of the land and existing structure could not be spread over or attributed to the subsequently acquired development right, and the computation provisions under section 48 failed because no cost could be assigned to that right. The precedents holding that such receipts were not taxable were followed.

Conclusion: The receipt from transfer of TDRs was not taxable under the head capital gains, and the addition made on that account was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded on the core capital gains issue, with only the consequential interest ground requiring reworking in accordance with the final income determination.

Ratio Decidendi: Where a transferred development right has no ascertainable cost of acquisition and is not one of the capital assets for which the statute deems cost to be nil, the machinery for computing capital gains fails and the receipt cannot be brought to tax as capital gains.

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