2022 (2) TMI 646 - AT - Income Tax

Tribunal rules on tax treatment of Transferable Development Rights

The Tribunal upheld the CIT(A)'s decision that the receipts from the sale of Transferable Development Rights (TDRs) were not chargeable to capital gains ... LTCG - Gain on sale of transferable development rights[TDR] - whether the sale consideration received on transfer of transferable development right was taxable as a long-term capital gain in the hands of the assessee or not? - HELD THAT:- We hold that the consideration received by the assessee on sale of transferable development rights not chargeable to tax under the head capital gain in view of the fact that there is no cost of acquisition. We are also conscious of the fact that the learned assessing officer when raised the issue of chargeability of the above sum Under the head capital gain, initially the assessee contended that there is no cost of acquisition in respect of the transfer of the asset and therefore that capital gain being the resultant transaction could not be chargeable however letter on the assessee submitted a valuation report during the assessment proceedings of Mr. K C Gandhi & co dated 13/3/1989 valuing the asset as on 31/3/1986 at ₹ 666,000. This order has stated that as the ownership of the land was vested with the assessee in consequence to execution of a deed of assignment on 20/10/1973 by assignor Mrs. Lilavati R SHelat in favour of the assessee and other coowner for the value specified therein, therefore the above cost of acquisition was derived by the assessee. However, that does not change the stand of the assessee that there is no cost of acquisition incurred by the assessee in respect of the asset transferred. In view of the above facts, we do not find any infirmity in the order of the learned CIT – A in holding that receipts against the sale of TDR are not chargeable to capital gain tax. Issues Involved:1. Initiation of reassessment proceedings under Section 148 of the Income Tax Act.2. Chargeability of receipts from the sale of Transferable Development Rights (TDRs)/Floor Space Index (FSI) to capital gains tax.3. Consistency in tax treatment for co-owners of the same property.4. Applicability of Section 50C of the Income Tax Act to development rights.5. Allowance of exemptions under Sections 54 and 54F of the Income Tax Act.Detailed Analysis:1. Initiation of Reassessment Proceedings Under Section 148:The learned Income Tax Officer initiated reassessment proceedings under Section 148, which the assessee challenged. The reassessment was based on the consideration of stamp duty valuation as deemed sale consideration and the cost of construction deduction under Sections 54 and 54F. The learned CIT(A) upheld the reassessment, and the assessee did not press further on this issue during the appeal.2. Chargeability of Receipts from the Sale of TDRs/FSI to Capital Gains Tax:The primary issue was whether the receipts from the sale of TDRs/FSI were chargeable to capital gains tax. The learned CIT(A) ruled in favor of the assessee, stating that the sale of TDRs was not chargeable to capital gains tax, citing the Bombay High Court decision in CIT vs. Shambhaji Nagar Co-op Housing Society Ltd. (370 ITR 325). The Tribunal upheld this view, noting that the TDRs did not have a cost of acquisition, and thus, the receipts could not be taxed as capital gains. This decision was supported by multiple precedents, including the coordinate Bench's decisions in similar cases.3. Consistency in Tax Treatment for Co-Owners of the Same Property:The learned CIT(A) and the Tribunal addressed the inconsistency in tax treatment between the assessee and his brother, who were co-owners of the same property. The brother had treated the receipt from the sale of TDRs as chargeable to capital gains tax, which was upheld by the ITAT. However, the assessee claimed that the receipts were not chargeable to capital gains tax. The Tribunal distinguished the two cases, noting that the brother's case involved a different claim and upheld the CIT(A)'s decision in favor of the assessee.4. Applicability of Section 50C to Development Rights:The learned AO argued that Section 50C, which deals with the valuation of land or building for stamp duty purposes, should apply to the transfer of development rights. The CIT(A) disagreed, stating that Section 50C applies only to the transfer of land and buildings, not development rights. The Tribunal upheld this view, noting that the development rights were separate from the land and building and thus not subject to Section 50C.5. Allowance of Exemptions Under Sections 54 and 54F:The learned AO had denied the assessee's claim for exemptions under Sections 54 and 54F, arguing that the cost of improvement could not be included in the cost of the new flat for claiming deductions. The CIT(A) allowed the exemptions, which the Tribunal upheld, noting that the assessee had substantiated the claim of deposit in the capital gain account scheme and its utilization for the purpose of purchasing a flat.Conclusion:The Tribunal dismissed the appeal of the learned AO, upholding the CIT(A)'s decision that the receipts from the sale of TDRs were not chargeable to capital gains tax and that the exemptions under Sections 54 and 54F were correctly allowed. The Tribunal also noted that Section 50C did not apply to the transfer of development rights and that the reassessment proceedings under Section 148 were valid.