2014 (7) TMI 293 - AT - Income Tax

LTCG on sale of addition FSI/TDR in the society - transfer of right determination of cost of acquisition - Held that - Following Late Smt. Jamnabai Anandji Matani, L/h Shri Bhupendra Matani Versus Income Tax Officer 2010 (4) TMI 1017 - ITAT MUMBAI - the expenditure incurred on purchase of plot and construction cannot be said to be the costs for acquisition of these rights - The rights are acquired by the virtue of being owner of the plot in the specified area but that does not mean that the cost incurred on the plot is the cost of acquiring these rights - The effect of the rights being relatable to the leasehold rights in the plot could at best be that the amount received by the assessee on assignment of rights to receive the transferable development rights ends up reducing effective cost of acquisition of the land and building in the said plot - as and when the assessee transfers the said plot, building or any portion thereof and while determining capital gains arising on such sale, the cost of acquisition may stand reduced by the amount received by the assessee on assignment of rights to receive the TDRs. What the assessee has transferred is not the plot or the building, but a right parting with which does not result in parting with land or building - The costs of obtaining BMC approval for the building plan can also not be said to be the costs of acquisition of these rights as these rights do not arise by the virtue of getting these approvals but by the virtue of a legal right in dependent - when an asset has no cost of acquisition, the gains on sale or transfer of same cannot be brought to tax - the receipts on sale of assignment of rights to receive TDRs are not liable to tax thus, the order of the CIT(A) is upheld in deleting the addition of ₹ 22,49,203/- made by the AO on account of long term capital gain arising from the sale of additional FSI/TDR Decided against Revenue.

Summary

Issues:
1. Taxability of long term capital gain from the sale of additional FSI/TDR.
2. Determination of the relevant assessment year for taxing the capital gain.

Issue 1: Taxability of long term capital gain from the sale of additional FSI/TDR:

The appeal was filed by the Revenue against the deletion of an addition of Rs. 22,49,203 made by the Assessing Officer (AO) on account of long term capital gain arising from the sale of additional FSI/TDR. The AO contended that the capital gain was taxable in the year the agreement was entered into, i.e., A.Y. 2003-04. However, the assessee argued that the gain arose in the previous year relevant to A.Y. 2004-05, as the agreement was effective only upon approval of building plans and issuance of a commencement certificate by the BMC. The AO made the addition, but the CIT(A) deleted it citing the difference between TDR and tenancy rights, referencing a Tribunal decision in favor of the assessee. The Tribunal upheld the CIT(A)'s decision based on the precedent set by a similar case, thereby dismissing the Revenue's appeal.

Issue 2: Determination of the relevant assessment year for taxing the capital gain:

The key contention revolved around whether the capital gain from the sale of additional FSI/TDR should be taxed in A.Y. 2003-04 or A.Y. 2004-05. The AO argued for the former based on the agreement date, while the assessee maintained it should be the latter due to the transaction's actual realization upon BMC approvals and possession transfer. The Tribunal, following a precedent case, ruled in favor of the assessee, emphasizing that the rights assigned to the developer did not have a cost of acquisition and, therefore, the capital gain was not taxable. The decision highlighted the distinction between the acquisition costs of the plot and the rights to receive and apply transferable development rights, ultimately leading to the dismissal of the Revenue's appeal.

In conclusion, the judgment addressed the taxability of long term capital gain from the sale of additional FSI/TDR and the determination of the relevant assessment year for taxation purposes. The decision heavily relied on legal interpretations, precedent cases, and the distinction between different types of rights involved in the transaction to rule in favor of the assessee and dismiss the Revenue's appeal.