2025 (10) TMI 1264 - AT - Service Tax

Transfer of transferable development rights under collaboration agreement not a 'service' under Section 65B(44); appeal dismissed

CESTAT held that the transfer of transferable development rights under a collaboration/development agreement falls outside the ambit of 'service' under ... Service or not - transfer of development rights (TDR) under a collaboration/development agreement - activity of transferring land development rights falls in the ambit of 'Service' as defined under Section 658(44) of Finance Act or not - HELD THAT:- The present issue is squarely covered by the decision of the Tribunal in the case of M/s Genius Propbuild Private Limited vs. Commissioner of Central Excise and CGST, Jaipur [2025 (9) TMI 1607 - CESTAT NEW DELHI] where it was held that 'the terms and conditions of the collaboration agreement that the ultimate aim for the transfer of development right was the transfer of land which in clear terms is out of the purview of the service tax.' The impugned order is upheld - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the transfer of development rights (TDR) under a collaboration/development agreement constitutes a 'service' within the meaning of Section 65B(44) of the Finance Act, 1994, attracting service tax. 2. Whether a collaboration agreement, absent a registered conveyance/sale deed, can be treated as transfer of title or transfer of benefits arising out of immovable property for purposes of the exclusion from 'service' under Section 65B(44). 3. Whether established judicial authorities holding TDR/transferable benefits arising from land to be immovable property are applicable and binding in the facts of this case. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether transfer of development rights amounts to a 'service' under Section 65B(44) Legal framework: Section 65B(44) defines 'service' as an activity carried out by a person for another for consideration but expressly excludes, inter alia, transfer of title in immovable property by way of sale, gift or any other manner. The statutory exclusion turns on whether the transaction constitutes transfer of immovable property or benefits arising therefrom. Precedent Treatment: The Tribunal relied on prior decisions of this Tribunal and various High Courts which have held that transfer of development rights (TDR) or benefits arising from land qualify as immovable property and hence fall outside the definition of 'service' under Section 65B(44). Specific prior decisions referenced by the Court (including a recent Bench decision) treated TDR as immovable property and held that no service tax is payable. Interpretation and reasoning: The Court examined the nature and legal effect of TDR as provided under the collaboration agreement and considered authoritative pronouncements holding that benefits arising out of land are immovable property (referring to the General Clauses Act definition). It reasoned that when TDR transfers to a developer the right to develop and ultimately has the effect of transferring undivided interest in land to purchasers, the transaction is essentially a transfer of immovable property or benefits arising therefrom. Once the transaction is characterized as land/benefit arising from land, it falls within the statutory exclusion and is not within the ambit of 'service'. Ratio vs. Obiter: Ratio - The decision endorses the view that transfer of development rights constitutes immovable property/benefits arising from land and therefore is excluded from the definition of 'service' under Section 65B(44), so no service tax applies. Obiter - ancillary remarks about factual illustrations of how deed execution and conveyance operate in specific agreements (as reproduced from earlier Bench decisions) do not expand the core rule beyond TDR characterization. Conclusions: Transfer of development rights under the collaboration/development agreement is a transfer of immovable property/benefits arising from land and is excluded from 'service' under Section 65B(44); accordingly, no service tax liability arises on such transaction. Issue 2: Whether absence of a registered conveyance deed precludes characterization of the transaction as transfer of immovable property/benefits Legal framework: Registration and conveyance formalities are governed by the Registration Act and Transfer of Property Act; Supreme Court decisions discussed registration in relation to transfer/creation of title. The statutory exclusion in Section 65B(44) hinges on the substantive character of the transaction (transfer of immovable property/benefits) rather than the presence of a specific registered document in every factual scenario. Precedent Treatment: The Department relied on decisions holding that transfer of property is completed upon registration of the conveyance deed; however, the Tribunal relied on a body of authority (including High Court and Tribunal decisions) treating TDR and similar arrangements as transfer of immovable property/benefits even where conveyance deeds operate subsequently to vest undivided interest in purchasers. Prior Tribunal decisions considered the overall legal effect of development agreements and resulting conveyances to conclude TDR is immovable property. Interpretation and reasoning: The Court considered the contention that absence of registered conveyance means no transfer of title. It found that where the contractual framework contemplates transfer of development rights that result in transfer of undivided interest in land to purchasers (by operation of the development/conveyance regime), the transaction is in substance a transfer of immovable property or benefits arising from land. The Court followed precedents that focus on substantive transfer (i.e., effective transfer of ownership/benefit) rather than a narrow formalism that denies the characterization solely because a particular conveyance document was not immediately registered. Ratio vs. Obiter: Ratio - The formal absence of a registered conveyance deed does not automatically convert a transfer of development rights into a taxable 'service' if the transaction in substance transfers immovable property/benefits and falls within the exclusion under Section 65B(44). Obiter - references to specific Supreme Court authorities distinguishing sale contracts from conveyance registration are noted but not treated as controlling against the view that TDR amounts to immovable property. Conclusions: The lack of a registered conveyance deed in the collaboration agreement does not prevent classification of the arrangement as transfer of immovable property/benefits where, on the terms of the agreement, the developer ultimately acquires rights tantamount to land/benefits arising out of land; thus the exclusion under Section 65B(44) applies. Issue 3: Applicability and effect of prior judicial decisions treating TDR as immovable property Legal framework: Judicial precedents interpreting 'immovable property' (including Section 3(26) of the General Clauses Act, 1897) and the exclusion in Section 65B(44) are relevant to the characterization of TDR for service tax purposes. Precedent Treatment: The Tribunal expressly followed earlier Bench decisions which (i) held that benefits arising from land are immovable property; (ii) held that TDR is a benefit arising from land and therefore immovable property; and (iii) concluded that consideration for transfer of such rights is not a taxable service. The Court distinguished contrary submissions by the department and aligned with a consistent line of decisions of Tribunals and High Courts that treated TDR as immovable property. Interpretation and reasoning: The Court endorsed the reasoning in those precedents that when a land-owning party transfers development rights, the developer acquires rights that translate into undivided interest transfer to subsequent purchasers without separate consideration, effectively transferring the ownership/benefit associated with land. Thus, such transfers fall squarely within the exclusion. The Court found no factual or legal basis to depart from those precedents on the facts before it. Ratio vs. Obiter: Ratio - Prior decisions holding TDR to be immovable property are followed and form the binding basis for the present conclusion that no service tax is payable. Obiter - references to other case law addressing principles of conveyance and registration are discussed but do not alter the controlling precedent on TDR characterization. Conclusions: The Court followed the established line of authority treating transfer of development rights as immovable property and applied that principle to dismiss the department's appeal; the precedent is treated as directly applicable and controlling on the facts. Cross-References and Interplay between Issues 1. Issue 1 and Issue 2 are interlinked: characterization of the transaction as a transfer of immovable property (Issue 1) necessarily requires examination of whether formal conveyance is determinative (Issue 2); the Court concluded that substantive effect controls over absence of immediate registration. 2. Issue 3 supplies the authoritative basis for Issues 1 and 2; the Tribunal explicitly followed previous Bench conclusions that TDR constitutes immovable property and falls outside the definition of 'service' under Section 65B(44).