2015 (12) TMI 447 - AT - Income Tax

Disallowance of exemption claimed on amount received from developer towards transfer of development rights (in short TDR ) - Held that - There is no dispute to the fact that the TDR rights accrued to the assessee under the Development Control Rules, 1991. It is further evident, instead of utilising the TDR rights himself, the assessee decided to transfer such rights to the developer for construction. However, there is no two opinion with regard to the fact that as far as the acquisition of development rights under Development Control Rules, 1991, is concerned, there is no cost to the assessee. Therefore, the issue to be decided is whether capital gain can be computed in respect of capital asset which has no cost of acquisition.In the absence of cost of acquisition of TDR rights, amount received on sale of such TDR rights cannot be subjected to long term capital gain as the computation provisions contained under section 48 of the Act, cannot be worked out. Compensation received on account of sale of TDR rights is not taxable, the other issues raised by the assessee relating to claim of exemption under section 54 of the Act and enhancement of compensation have become redundant and not required to be adjudicated upon. - Decided partly in favour of assessee.

Issues involved:
1. Disallowance of exemption claimed on amount received from developer towards transfer of development rights (TDR).

Detailed Analysis:
1. The appeal was filed against the order passed by the Commissioner (Appeals) for the assessment year 2009-10, with ten grounds raised by the assessee. Grounds no.1 and 10 were dismissed as general issues not requiring specific adjudication.
2. The specific issue in grounds no.2, 3, and 4 was the disallowance of exemption claimed on the amount received from the developer for transfer of development rights (TDR).
3. The assessee claimed exemption from capital gain on the amount received from the sale of TDR, arguing that as there was no cost of acquisition for the TDR, capital gain could not be computed. The Commissioner (Appeals) rejected this claim based on the cost of acquisition of leasehold rights accepted by the Assessing Officer.
4. The Tribunal set aside the Commissioner's order and directed a fresh decision. The Commissioner reaffirmed the earlier decision, leading to the current appeal.
5. The assessee argued that the TDR rights had no cost of acquisition and cited legal precedents to support the claim that the amount received on the sale of TDR should not be subject to long-term capital gain tax.
6. The Departmental Representative disagreed, stating that the assessee had shown a cost of acquisition in the computation of capital gain, and therefore, the claim of exemption was baseless.
7. The Tribunal analyzed the submissions, emphasizing that the TDR rights had no cost of acquisition under the Development Control Rules, 1991. Citing a judgment of the Jurisdictional High Court, the Tribunal held that without a cost of acquisition, the amount received on the sale of TDR could not be subjected to long-term capital gain tax.
8. Consequently, the Tribunal allowed the assessee's appeal, ruling that the compensation received for the sale of TDR rights was not taxable.
9. As a result of the above decision, other issues raised by the assessee became redundant and were not adjudicated upon.
10. The appeal was partly allowed by the Tribunal based on the findings related to the taxation of the amount received from the sale of TDR rights.

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