2020 (12) TMI 101 - AT - Income Tax

Tribunal rules Transferable Development Rights not 'immovable property' for tax purposes

The Tribunal allowed the appeal, ruling that Transferable Development Rights (TDRs) do not qualify as 'immovable property' under Sections 56(2)(vii)(b) ... Capital gain on transfer of development rights (TDR) - Application of section 50C in the case of developmental rights - HELD THAT:- The term 'capital asset' mentioned in the section specifically refers and confines its meaning to 'land or building or both'. Thus, scope of section 50Ci s restricted by the legislature itself to these two types of capital assets only. In the present case before us, the capital asset transferred by the assessee was 'Development Rights in the land' and not the 'Land' itself. If we go through similar provisions of the Act, we find that the legislature has used this expression consciously and carefully and keeping in view its need and objective of legislating section 50C. We should apply the 'Rule of strict Interpretation' as well as 'Rule of Literal Construction' while understanding the meaning and scope of deeming provisions - under the given facts and circumstances, Ld. Counsel has rightly contended that since the impugned capital asset transferred by the assessee upon which long term capital gain has been computed by the AO is on account of transfer of Development Rights in the land of the assessee. The land itself has not been transferred by the assessee. Thus, in our opinion provisions of section 50C have been wrongly applied upon the impugned transaction. Thus, we reverse the action of lower authorities in applying the provisions of section 50C and in substituting any value other than the amount of actual sales consideration received by the assessee. It is also noted by us that for the assessment year under consideration there is no other provisions on the statute which permit the AO to substitute any other value with the full amount of consideration actually received by the assessee, while computing income under the head of capital gains - Ground of the assessee is allowed. Issues Involved:1. Applicability of Section 56(2)(vii)(b) of the Income Tax Act to Transferable Development Rights (TDR).2. Applicability of Section 50C of the Income Tax Act to TDR.3. Consideration of TDR as a capital asset or business asset.4. Charging of interest under Sections 234-A and 234-B of the Income Tax Act.Detailed Analysis:1. Applicability of Section 56(2)(vii)(b) of the Income Tax Act to Transferable Development Rights (TDR):The primary issue revolves around whether the TDR acquired by the assessee can be considered 'immovable property' under Section 56(2)(vii)(b) of the Income Tax Act. The CIT(A) upheld the addition of Rs. 4.02 crores as deemed consideration, asserting that TDR is immovable property and should be valued based on the stamp value adopted by the Sub-Registrar. However, the assessee argued that TDR, which allows the right to additional Floor Space Index (FSI), does not fall under the definition of 'immovable property' as per the Act. The Tribunal agreed with the assessee, noting that the definition of 'property' under Section 56(2)(vii) includes only land or building, not TDRs. Therefore, the Tribunal concluded that Section 56(2)(vii)(b) does not apply to TDRs.2. Applicability of Section 50C of the Income Tax Act to TDR:The Tribunal examined whether Section 50C, which applies to the transfer of land or building, can be extended to TDRs. The Tribunal noted that Section 50C specifically refers to 'land or building or both' and does not include rights therein. The Tribunal emphasized that deeming provisions like Section 50C should be construed strictly and literally. Since the assessee transferred development rights in the land and not the land itself, the Tribunal held that Section 50C was wrongly applied. The Tribunal reversed the lower authorities' decision to substitute the actual sales consideration with the stamp duty value.3. Consideration of TDR as a Capital Asset or Business Asset:The assessee contended that the TDR was a business asset, not a capital asset, as it was held for business purposes and depicted in the financial statement. The CIT(A) dismissed this argument, stating that the balance sheet for the relevant assessment year was not filed, and the breakup of the cost of land and TDRs was not shown. The Tribunal, however, focused on the nature of TDRs and concluded that they should not be considered as 'land or building' under the relevant sections of the Income Tax Act. Therefore, the provisions of Section 56(2)(vii)(b) and Section 50C were deemed inapplicable.4. Charging of Interest under Sections 234-A and 234-B of the Income Tax Act:The assessee denied liability for interest under Sections 234-A and 234-B, arguing that these charges were unwarranted given the circumstances. The Tribunal did not provide a detailed analysis of this issue, as the primary focus was on the applicability of Sections 56(2)(vii)(b) and 50C to TDRs. However, since the Tribunal allowed the appeal on the main grounds, the issue of interest charges became moot.Conclusion:The Tribunal allowed the assessee's appeal, concluding that TDRs do not fall under the definition of 'immovable property' for the purposes of Sections 56(2)(vii)(b) and 50C of the Income Tax Act. Consequently, the additions made by the lower authorities based on these sections were reversed. The Tribunal emphasized the need for strict and literal interpretation of deeming provisions and ruled that TDRs should not be equated with land or building for tax purposes.