2012 (8) TMI 1198 - AT - Income Tax

Summary

Issues involved: The judgment involves the taxation of income from the sale of Transferable Development Rights (TDR) under the head "capital gains" or "profit and gains of business or profession" for the Assessment Year 2006-07.

Summary:

Issue 1: Taxability of TDR sale proceeds under "capital gains"

1. The assessee, engaged in construction activity, earned a sum from the sale of TDR after developing a road as part of a project.
2. The Assessing Officer considered the TDR sale proceeds as taxable under "capital gains," rejecting the assessee's claim that it should be adjusted against the expenditure incurred on road development.
3. The Assessing Officer's decision was based on the view that the TDR sale proceeds are assessable under "capital gains."

Issue 2: Treatment of TDR sale proceeds in project completion method

1. The assessee contended before the CIT(A) that it followed the completion of the project method, where all expenditure was debited to work-in-progress, including the income from the sale of TDR.
2. The CIT(A) accepted the assessee's plea, noting the direct nexus between the TDR and the project development, and directed the Assessing Officer to allow the reduction of TDR sale proceeds from work-in-progress.
3. The CIT(A) found that the TDR was incidental to the project and its sale proceeds should be reduced from the total cost of the project.

Separate Judgment:
- The Appellate Tribunal upheld the CIT(A)'s decision, confirming that the TDR sale proceeds had a direct nexus with the development work and were incidental to the entire project undertaken. The assessee was justified in reducing the sale proceeds from work-in-progress, leading to the dismissal of the revenue's appeal.

In conclusion, the judgment ruled in favor of the assessee, allowing the reduction of TDR sale proceeds from work-in-progress and dismissing the revenue's appeal. The cross objection and application filed by the assessee were also dismissed as infructuous.