TDR/FSI rights with no ascertainable cost of acquisition were not taxable as capital gains, and timing followed effective transfer.

Consideration received for permitting a developer to use TDR/FSI rights on land was held not chargeable to capital gains because those rights arose under development regulations and had no ascertainable cost of acquisition. The receipt was therefore outside the capital gains head as a self-generated or indeterminate-cost right. On timing, the transfer was treated as effective only when the contractual conditions for payment and possessory rights were satisfied, so the receipt was assessable in A.Y. 2004-05 and not A.Y. 2002-03. The additions based on capital gains taxation in A.Y. 2002-03 were not sustained.

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Issues: (i) whether consideration received for permitting the developer to use TDR/FSI rights on the assessee's land was chargeable to capital gains tax; (ii) whether the receipt was assessable in A.Y. 2002-03 or A.Y. 2004-05.

Issue (i): whether consideration received for permitting the developer to use TDR/FSI rights on the assessee's land was chargeable to capital gains tax

Analysis: The receipt arose from rights generated under the development control regime, and the Court applied the principle that an asset which has no ascertainable cost of acquisition cannot be brought to tax under the head "Capital gains". The rights transferred were not an independently acquired capital asset with a determinable cost, and the reasoning was aligned with the settled rule on self-generated or indeterminate-cost rights.

Conclusion: The consideration for permitting use of TDR/FSI rights was not taxable as capital gains and the issue was decided in favour of the assessee.

Issue (ii): whether the receipt was assessable in A.Y. 2002-03 or A.Y. 2004-05

Analysis: On the facts, the transfer became effective only when the contractual payment condition linked to substantial consideration and possessory rights was satisfied, which occurred in the later year. The timing of the transaction for tax purposes was therefore fixed by the completion of the effective transfer arrangement rather than the initial agreement date alone.

Conclusion: The receipt was assessable in A.Y. 2004-05 and not in A.Y. 2002-03, in favour of the assessee.

Final Conclusion: The additions made on the footing that the TDR/FSI consideration was taxable as capital gains in A.Y. 2002-03 could not be sustained, and the assessee obtained relief on the substantive taxability issue.

Ratio Decidendi: Where development rights or TDR/FSI arise from statutory development regulations and no ascertainable cost of acquisition can be attributed to the transferred rights, the resulting receipt is not chargeable to capital gains tax.

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