Tribunal rules no capital gains tax on Transferable Development Rights sale

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO regarding capital gain on the sale of Transferable Development Rights (TDR) development rights. The Tribunal agreed that as the TDR rights were generated by the plot itself and there was no cost of acquisition, no capital gain tax was attracted. The High Court's decision supported this view, stating that the sale of TDR/FSI rights did not result in assessable capital gain tax. Consequently, the Tribunal dismissed the Revenue's appeal, ruling that the sale of TDR/FSI rights did not incur capital gain tax liability due to the absence of a cost of acquisition.

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Issues:
1. Deletion of addition by CIT(A) regarding capital gain on sale of TDR development rights.

Analysis:
The appeal was filed by the Revenue against the CIT(A)'s order related to the assessment year 2010-11. The primary issue raised was the deletion of the addition by the CIT(A) concerning the capital gain on the sale of Transferable Development Rights (TDR) development rights. The AO had determined the market value of the TDR/FSI rights and calculated the capital gain in the hands of the assessee. However, the CIT(A) allowed the appeal of the assessee by considering that the assessee had not made a sale of land and building but had permitted the builder to exploit the FSI/TDR for construction purposes. The CIT(A) held that as the TDR rights arose due to amendments in regulations, there was no cost of acquisition, and thus no capital gain was attracted. Additionally, the provisions of section 50C of the Act were deemed wrongly invoked by the AO. Consequently, the CIT(A) deleted the addition made by the AO on account of capital gain from the sale of TDR/FSI rights, stating that it was not chargeable to capital gain tax.

In support of the assessee's case, the counsel referred to a decision of the Hon'ble Bombay High Court, emphasizing that there was no cost of acquisition incurred for TDR/FSI as they were generated by the plot itself. The High Court's decision highlighted that any receipt from the sale of TDR/FSI in such circumstances would not result in assessable capital gain tax. The Revenue, however, argued that FSI/TDR fell within the definition of a capital asset and thus should be liable for capital gain tax under the relevant provisions.

After considering the arguments and the High Court's decision, the Tribunal observed that the High Court had held that the sale of FSI/TDR rights, which were generated by the plot itself following the promulgation of Development Control Rules, did not attract capital gain tax due to the absence of a cost of acquisition. As the facts of the present case aligned with the High Court's decision, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.

Therefore, based on the legal interpretation and precedents, the Tribunal found that the sale of TDR/FSI rights did not result in capital gain tax liability, as there was no cost of acquisition for such rights, as established by the relevant regulations and legal provisions.

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