No cost of acquisition means no taxable capital gains on transfer of development rights and additional FSI.

Transfer of development rights and additional FSI received in redevelopment does not give rise to taxable capital gains where no cost of acquisition was incurred and the asset does not fall within a deeming provision. The computation scheme under the Income-tax Act requires an ascertainable cost of acquisition for capital gains taxation; an asset acquired without such cost cannot be brought to tax as capital gains on transfer. On that basis, the addition was deleted and the assessee's position was accepted.

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Issues: Whether consideration received on transfer of development rights and additional FSI, where no cost of acquisition was incurred, gave rise to taxable capital gains.

Analysis: The assessee society had acquired land and constructed its building long before the redevelopment arrangement. The additional FSI arose only because of the applicable development regulations and was transferred for consideration in connection with redevelopment. The governing test for capital gains computation requires a cost of acquisition and, where the asset does not fall within the specified deeming provisions, an asset with no ascertainable cost of acquisition cannot be brought to tax as capital gain. The statutory scheme of computation under the Income-tax Act, 1961 was applied in light of the principle that transfer of an asset without cost of acquisition does not yield taxable capital gains.

Conclusion: The addition made by the Assessing Officer was not sustainable and was deleted. The issue was decided in favour of the assessee.

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