2019 (1) TMI 545 - HC - Income Tax

Compensation received from transfer of development rights - taxabilty under the provisions of long term capital gains - Transfer of Development Rights (TDR) - computation of the sale of TDR Held that - The entire issue is squarely covered by the Judgment of Division Bench of this Court in the case of Sambhaji Nagar Co-op. Hsg. Society Ltd. 2014 (12) TMI 1069 - BOMBAY HIGH COURT the land and building earlier in the possession of the Assessee continued to remain with it. Even after the transfer of the right or the additional FSI, the position did not undergo any change. The Revenue could not point out any particular asset as specified in sub-section (2) of section 55. Taxing the value of 3 fats as a capital gain, the Revenue has proceeded on completely erroneous basis. The assessee had withheld portion of available FSI for 3 fats which was constructed by the builder at the cost of the assessee and the fats were thus acquired by the assessee. All this was part of argument between the assessee and the builder. In any case, once we hold that any receipt from transfer of TDR in the present case cannot be taxed as a capital gain and this question would itself become academic. Tax Appeal is dismissed.

Summary

Issues:
1. Taxability of compensation received from transfer of development rights under long term capital gains.
2. Existence of cost of acquisition for development rights.
3. Adjudication on exemption under section 54 of the Income Tax Act.

Issue 1: Taxability of Compensation Received:
The appeal challenged the ITAT's judgment regarding the taxability of compensation received from the transfer of development rights under long term capital gains. The AO initially taxed the receipt as capital gain, questioning the absence of offering a sum to capital gain. The contention was that without a cost of acquisition, capital gain tax cannot be charged. The Commissioner proposed to enhance the assessment, including the value of fats provided by the builder to the assessee. However, the Tribunal, relying on a previous decision, held that in the absence of the cost of acquisition of development rights, the TDR cannot be taxed as capital gain. The Tribunal did not delve into the subsequent question of the transfer of constructed area by the builder to the assessee.

Issue 2: Existence of Cost of Acquisition:
The Commissioner rejected the assessee's contention regarding the absence of cost of acquisition for development rights and fats provided by the builder. The Tribunal, following a Division Bench decision, emphasized that without a cost of acquisition, the TDR cannot be taxed as capital gain. The Counsel for Revenue argued that the Tribunal erred in applying the previous decision and not examining the transfer of fats to the assessee. However, the Court concluded that the issue was covered by the previous judgment, stating that the TDR generated by the plot without a cost of acquisition cannot be taxed as capital gain.

Issue 3: Adjudication on Exemption under Section 54:
The Commissioner proposed to enhance the assessment by including the value of fats provided by the builder to the assessee. The Tribunal's decision focused on the taxability of TDR without a cost of acquisition, thereby not adjudicating on the exemption under section 54 of the Act. The Court reiterated that the TDR, being generated without a cost of acquisition, cannot be taxed as capital gain, making the question of taxing the value of fats as capital gain irrelevant. The Tax Appeal was dismissed based on the conclusion that any receipt from the transfer of TDR in this case cannot be taxed as capital gain.