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2013 (2) TMI 177 - AT - Income TaxCapital gains income - Transfer of Development Rights (TDR) - liability to be taxed as capital gains of the appellant society - charging interest u/s 234B - Held that - The concept of TDRs originates from the regulation of Development Control Regulation of Greater Mumbai i.e., DCR, 1991 , wherein it was provided that the owner or a lessee of a plot, which was reserved for public purpose under the development plan of DCR, would be eligible for award of compensation by way of development right certificate of equivalent Floor Space Index (FSI). Such a right is definitely a Capital Asset held by the assessee and assignment of such a right in favour of the developer amounts to transfer of capital asset. Thus transfer of TDRs amounts to transfer of a Capital Asset . The law is trite, and there is no dispute on the said position, that when an asset has no cost of acquisition, the gains on sale or transfer of same cannot be brought to tax as decided in the case of Shri B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT & Jethalal D. Mehta v. Dy. CIT 2005 (1) TMI 595 - ITAT MUMBAI The perusal of section 55(2)(a) reveals that cost of acquisition is to be taken at nil in those cases where the capital asset transferred is either goodwill of business or the trademark or a brand name associated with business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hours. In the present case, the assessee is not carrying on any business and the right to construct additional floors is not covered by any of the assets mentioned in the aforesaid sub-section (2) of section 55. Therefore, the amended provisions of section 55(2) do not apply to the present case and the lower authorities were not justified in taking the cost of acquisition of the capital asset being right to construct the additional floors as nil. Therefore the transfer of TDR amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head Capital Gain for the reason that there is no cost of acquisition in acquiring the right which has been transferred and computational mode given in section 48, therefore, taxing under the head capital gain by the AO cannot be sustained - in favour of assessee.
Issues Involved:
1. Validity of assessment order under section 143(3) of the Income Tax Act, 1961. 2. Dismissal of appeal by the Commissioner of Income Tax (Appeals) [CIT(A)]. 3. Opportunity of being heard and appreciation of facts by CIT(A). 4. Determination and assessment of capital gains income. 5. Taxability of capital gains accrued to the appellant society. 6. Adoption of cost of acquisition for computing capital gains income. 7. Charging of interest under section 234B of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of Assessment Order: The appellant did not press this ground, and it was dismissed as "not pressed." 2. Dismissal of Appeal by CIT(A): Similarly, this ground was not pressed by the appellant and was dismissed as "not pressed." 3. Opportunity of Being Heard and Appreciation of Facts by CIT(A): This ground was also not pressed by the appellant and was dismissed as "not pressed." 4. Determination and Assessment of Capital Gains Income: This ground was not pressed and dismissed as "not pressed." 5. Taxability of Capital Gains Accrued to the Appellant Society: The crux of the appeal revolved around whether the amount received from the transfer of Transferable Development Rights (TDRs) should be taxed as capital gains. The assessee argued that the receipt from the transfer of TDRs is not taxable as it did not have any cost of acquisition and cited various judicial precedents in support. The Assessing Officer (AO) and CIT(A) held that the TDRs are a capital asset and the transfer of such rights is liable to be taxed under the head "Capital Gains." They relied on the fact that the land is an asset and the rights attached to it, including development rights, are part of the ownership of the land. The AO computed the capital gains by considering the full value of consideration received and deducting the cost of acquisition and expenses. 6. Adoption of Cost of Acquisition for Computing Capital Gains Income: The AO determined the cost of acquisition based on the value of the land as on 1.4.1981 and indexed it to compute the capital gains. The CIT(A) upheld this computation, stating that the right to transfer TDRs is a capital asset and the cost of acquisition must be considered. The AO and CIT(A) rejected the appellant's reliance on judicial precedents that held no cost of acquisition can be ascribed to such rights. 7. Charging of Interest under Section 234B: The AO charged interest under section 234B, which was contested by the appellant. The Tribunal directed the AO to give consequential effect in accordance with the law while re-computing the income of the assessee. Tribunal's Findings: The Tribunal analyzed the concept of TDRs and concluded that the transfer of TDRs amounts to the transfer of a capital asset. However, it held that there was no cost of acquisition for such rights as they emanated from the Development Control Regulation, 1991, and were separate from the original right in the land. The Tribunal relied on various judicial precedents that held the computational provisions of section 48 fail when no cost of acquisition can be ascribed to the right transferred. Consequently, the Tribunal directed the deletion of the capital gains taxed by the AO and reversed the order of the CIT(A). Conclusion: The appeal was treated as partly allowed, with the Tribunal directing the deletion of the capital gains taxed and giving consequential directions regarding the charging of interest under section 234B.
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