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2010 (5) TMI 839 - AT - Income TaxValuation of cost of acquisition of FSI and TDR - HELD THAT - We are of the opinion that the Ld. CIT(A) was right in assessing the transfer of FSI/TDR under the head capital gain instead of assessing the same under the head income from other sources . However, as there is no cost of acquisition of the asset transferred, there will be no liability to capital gains. ''Ld. CIT (A) held that Once it has been decided that sale of FSI in the form of development rights results into capital gains, it is crystal clear that the compensation received by the appellant has to be assessed as capital gains. The loading of TDR has been possible on the plot of land in question only on account of the ownership right of the appellant subsisting in the piece of land. Transfer of such TDR to the developer through development agreement, therefore, clearly results in capital gains. The AO is, accordingly, directed that the gain arising on transfer of FSI/TDR rights be assessed as capital gain for which he will make the necessary calculation of sale consideration and cost of acquisition and/or improvement. He will also allow exemption u/s. 54 and 54EC to the extent of investments made, after due verification.'' Similar view has been taken in the case of Jethalal D. Mehta vs Dy. CIT 2005 (1) TMI 595 - ITAT MUMBAI and Maheshwar Prakash 2008 (5) TMI 455 - ITAT MUMBAI . In the result, the appeal filed by the Revenue is dismissed.
Issues:
Assessment of income from the sale of Transfer of Development Rights (TDR) as capital gains or income from other sources. Analysis: 1. Issue of Capital Gains vs. Income from Other Sources: The case involved determining whether the income arising from the sale of Transfer of Development Rights (TDR) should be treated as capital gains or income from other sources. The Assessing Officer contended that the arrangement with the developer was for compensation for loading and developing TDR, thus classifying the proceeds as income from other sources. However, the Authorized Representative argued that the TDR was a capital asset, and the transfer of such rights should result in capital gains. The Ld. CIT(A) agreed with the Authorized Representative, emphasizing that the gain from the transfer of FSI/TDR rights should be assessed as capital gains, allowing exemptions under relevant sections of the Income Tax Act. 2. Nature of Development Rights as Capital Asset: The Ld. Counsel for the assessee argued that FSI/TDR, being a benefit arising from the land, should be considered immovable property, thus constituting a capital asset. Referring to legal precedents, it was established that benefits arising from land are immovable property. The Tribunal cited various decisions supporting the view that FSI transfer does not have a cost of acquisition, leading to no taxable capital gains. This argument was further supported by the decisions in similar cases, ultimately leading to the dismissal of the Revenue's appeal. 3. Application of Precedents and Tribunal Decisions: The Tribunal extensively analyzed previous decisions related to FSI transfers, emphasizing that in cases where there is no cost of acquisition for the asset transferred, there should be no liability to capital gains tax. Relying on various Tribunal decisions, the Tribunal concluded that the transfer of FSI/TDR should be assessed under the head of capital gains rather than income from other sources. The lack of cost of acquisition for the asset transferred led to the deletion of the addition made by the Assessing Officer, resulting in the allowance of the assessee's appeal on this issue. In conclusion, the Tribunal upheld the Ld. CIT(A)'s decision to treat the transfer of FSI/TDR as capital gains, following legal precedents and Tribunal decisions that established the lack of cost of acquisition for such transfers, leading to no taxable capital gains liability.
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