2019 (7) TMI 428 - AT - Income Tax

Capital gain on sale of Floor Space Index(FSI)/transfer of development rights(TDR) - whether FSI/TDR fall under the definition of capital asset u/s 2(14) - whether no cost of acquisition incurred of TDR/FSI as these are generated by the plot itself? - HELD THAT - As perusing the material on record including the decision of the Hon ble Bombay High Court in the case of CIT vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. 2014 (12) TMI 1069 - BOMBAY HIGH COURT as held that in case of sale of FSI/TDR rights by the assessee to the developers which have accrued in favour of the assessee following promulgation of Development Control Rules for Greater Mumbai, 1991 and the said developmental right were generated by the plot itself and there is no cost of acquisition and therefore not liable for any capital gain tax. In the present case , the facts are similar to the facts in the case as discussed hereinabove wherein the Hon ble Bombay High Court has held that no capital gain tax is attracted in the case of sale of FSI/TDR, we therefore, respectfully following the same uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.

Summary

Issues:
1. Deletion of addition by CIT(A) regarding capital gain on sale of TDR development rights.

Analysis:
The appeal was filed by the Revenue against the CIT(A)'s order related to the assessment year 2010-11. The primary issue raised was the deletion of the addition by the CIT(A) concerning the capital gain on the sale of Transferable Development Rights (TDR) development rights. The AO had determined the market value of the TDR/FSI rights and calculated the capital gain in the hands of the assessee. However, the CIT(A) allowed the appeal of the assessee by considering that the assessee had not made a sale of land and building but had permitted the builder to exploit the FSI/TDR for construction purposes. The CIT(A) held that as the TDR rights arose due to amendments in regulations, there was no cost of acquisition, and thus no capital gain was attracted. Additionally, the provisions of section 50C of the Act were deemed wrongly invoked by the AO. Consequently, the CIT(A) deleted the addition made by the AO on account of capital gain from the sale of TDR/FSI rights, stating that it was not chargeable to capital gain tax.

In support of the assessee's case, the counsel referred to a decision of the Hon'ble Bombay High Court, emphasizing that there was no cost of acquisition incurred for TDR/FSI as they were generated by the plot itself. The High Court's decision highlighted that any receipt from the sale of TDR/FSI in such circumstances would not result in assessable capital gain tax. The Revenue, however, argued that FSI/TDR fell within the definition of a capital asset and thus should be liable for capital gain tax under the relevant provisions.

After considering the arguments and the High Court's decision, the Tribunal observed that the High Court had held that the sale of FSI/TDR rights, which were generated by the plot itself following the promulgation of Development Control Rules, did not attract capital gain tax due to the absence of a cost of acquisition. As the facts of the present case aligned with the High Court's decision, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.

Therefore, based on the legal interpretation and precedents, the Tribunal found that the sale of TDR/FSI rights did not result in capital gain tax liability, as there was no cost of acquisition for such rights, as established by the relevant regulations and legal provisions.