Capital Gains on sale of TDR received as additional FSI under D. C. Regulations is not chargeable to tax

We have heard both sides at great length and with their assistance, we have perused the order passed by the Tribunal and that of the Commissioner and the Assessing Officer.  The Assessing Officer has noted the basic facts and about which there is no dispute.  What has been argued before the Assessing Officer is that with the promulgation of the Development Control Rules, 1991 (DCR), the Assessee Society acquired   right  of   putting   up  additional   construction   through   TDR. Instead of utilising this right itself, the Society decided to transfer the same to a Developer for a consideration.   The Society transferred a valuable right, which is capital asset under section 2(14) of the Income Tax Act.  The right created by the DCR attaches to the land owned by the Society which was acquired for a value.  Its title or ownership of the plot   enables the   Society   to   consume   this   FSI/TDR.     In   such circumstances, this is a transfer of capital asset held by the Society, which is chargeable to tax.

Legislature  contemplates that income chargeable under head “capital gains” has to  be computed.  The mode of computation is laid down by section 48,whereas  by  section  49,  the  cost  with  reference  to  certain  modes  of acquisition has been set out.   For the purposes of both sections, the legislature has devised the scheme in section 55 and sub­section (2) thereof clarifies that for the purposes of sections 48 and 49, “cost of acquisition” in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on  any business, tenancy rights, stage carriage permits or loom hours has to be computed.  In this case, the Assessee stated that nothing of these things would cover the sale of TDR and in the absence of a specific provision, the income shall be taken to be Nil.

Hon’ble   Supreme   Court   in   the   case   of Commissioner of Income Tax, Bangalore vs. B. C. Srinivasa Shetty (1981) 128 ITR 294  and the amendment to section 55(2) of the Income Tax Act and held that the Assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained.   It was therefore held that since the capital gains could not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax.

Thus, the conclusion of the Hon’ble Supreme Court is that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head “Capital gains” as opposed to assets in the acquisition of which no cost at all can be conceived.  In the  present  case  as  well,  the  situation  was  that  the  FSI/TDR  was  generated by the plot itself.  There was no cost of acquisition, which has been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains.  It may  be  that  sub­section  (2)  of  section  55  clause  (a)  having  been amended,  there  is  a  stipulation  with  regard  to  the  tenancy  rights. However,  even  in  the  case  of  tenancy  right,  the  view  taken  by  the Hon’ble Supreme Court, after the provision was substituted w.e.f. 1st April, 1995, is as above.  The further argument is that the tenancy rights now can be brought within the tax net and in the present case the asset or  the  benefit  is  attached  to  the  property.    It  is  capable  of  being transferred.   All this may be true but as the Hon’ble Supreme Court holds it must be capable of being acquired at a cost or that has to be ascertainable.  In the present case, additional FSI/TDR is generated by change  in  the  D.  C.  Rules.    A  specific  insertion  would  therefore  be necessary so as to ascertain its cost for computing the capital gains. Therefore, the Tribunal was in no error in concluding that the TDR which   was   generated   by   the   plot/property/land   and   came   to   be transferred under a document in favour of the purchaser would not result in the gains being assessed to capital gains.  The factual backdrop is noted by the Tribunal in para 3 and thereafter the rival contentions. The Tribunal concluded and relying upon its order passed in two other cases that what the Assessee sold was TDR received as additional FSI as per the D. C. Regulations.  It was not a case of sale of development rights   already   embedded   in   the   land   acquired   and   owned   by   the Assessee.  The Tribunal’s conclusion and further to be found in para 11 is  based on its  view taken  in  the  case  of  New  Shailaja Co­operative Housing Society Ltd. The Tribunal has reproduced that conclusion.  The Tribunal’s conclusion arrived at in the case of New Shailaja Co­operative Housing Society Ltd., is based on the Hon’ble Supreme Court’s decision in the case of  B. C. Srinivasa Shetty  (supra).  The Tribunal concluded that the Assessee had not incurred any cost of acquisition in respect of the   right   which   emanated   from   1991   Rules,   making   the   Assessee eligible   to   additional   FSI.     The   land   and   building   earlier   in   the possession of the Assessee continued to remain with it.  Even after the  ransfer 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  sub­section  (2)  of  section  55.    The  conclusion  of  the Tribunal is imminently possible and in the given facts.   That is also possible in the light of the legal position as noted by language of section 55(2) and the Judgment of the Hon’ble Supreme Court, which is in the field.

We  have  made  a  reference  to  all  these  materials  only  because Mr. Malhotra tried to persuade us to conclude that this aspect is also  specified  in  sub­section  (2)  of  section  55  and  that  is  how  the Tribunal’s view is vitiated by error of law apparent on the face of the record.   We are not persuaded to hold so in the light of the above discussion.    In  such  circumstances,   the  Tribunal’s  order   cannot  be termed as perverse either.  The Appeal does not raise any substantial question of law.  It is dismissed, but without any order as to costs.