Kamlesh Pukhraj Talera Vs DCIT (ITAT Bangalore)
Bangalore ITAT: TDR Received Against Surrender of Land Is Not a “Zero-Cost” Asset – Sale Taxable as Capital Gains After Deducting Value of Land Surrendered
The Bangalore ITAT dealt with taxability of ₹6.01 crore received on sale of Transferable Development Rights (TDR). The assessee had surrendered 2,839 sq. metres of land to BBMP for road widening, received TDR certificates in exchange, and subsequently sold those TDRs to a builder/developer for ₹6,01,53,500.
The assessee relied principally on B.C. Srinivasa Setty and Sambhaji Nagar Co-operative Housing Society Ltd., contending that TDR had no ascertainable cost of acquisition, and therefore the computation mechanism under Section 48 failed. The Tribunal accepted the principle that self-generated TDR, for which no identifiable asset or consideration has been given, may have no ascertainable cost and consequently escape capital-gains taxation under the pre-amendment law.
However, the Tribunal drew a crucial distinction in the present case. The TDR was not self-generated. The assessee had parted with an identifiable and valuable capital asset—land—in exchange for the TDR. Therefore, the TDR had a real and ascertainable cost, namely the value/cost attributable to the land surrendered. Consequently, Sections 45 and 48 remained fully workable, and the B.C. Srinivasa Setty principle of failure of computation did not apply.
The Tribunal identified two distinct taxable events:
First, surrender of land in exchange for TDR itself constitutes a transfer under Section 2(47). Capital gains on the land arise in the year of surrender, with the fair market value of the TDR received constituting consideration, subject to the normal operation of Sections 48 and 50C.
Second, when the TDR is subsequently sold for cash, a further capital-gains computation arises. For this second transaction, the cost of acquisition of the TDR is the value of the land surrendered to acquire it/FMV of the TDR at the time of acquisition. The holding period of the TDR begins from the date on which the TDR was acquired, i.e. the date of surrender of land.
The Tribunal also dealt with the Finance Act, 2023 amendment to Section 55(2)(a). It held that the amendment deeming the cost of certain rights to be nil essentially concerns self-generated rights for which no consideration has been paid. It does not convert an asset actually acquired for consideration into a zero-cost asset. Where TDR is obtained by surrendering land, the actual value of the land given up continues to constitute its cost of acquisition.
The assessee’s additional contention that the assessment was a limited scrutiny confined only to verification of refund was also rejected. The Section 143(2) notice did not describe the case as limited scrutiny; hence, the AO was competent to examine the taxability of the ₹6.01-crore TDR consideration.
Ultimately, the ITAT dismissed the assessee’s appeal and upheld the taxability of the TDR sale as capital gains. However, since the AO had taxed the consideration without allowing the corresponding cost, the Tribunal directed the AO to recompute the capital gain after deducting the cost of acquisition attributable to the land surrendered under Section 48(ii).
Key takeaway: There is a fundamental distinction between self-generated TDR and TDR acquired by surrendering land. Where land is surrendered to obtain TDR, the TDR has an ascertainable cost- the value attributable to the land surrendered-and its subsequent sale is taxable as capital gains only after allowing that cost.
Cases Discussed
- Commissioner of Income-tax vs. D.P. Sandu Bros. Chembur (P.) Ltd. (SC), [2005] 142 Taxman 713 (SC)// [005] 273 ITR 1 (SC)/ [2005] 193 CTR 578 (SC) [31-01-2005]
- Chittharanjan A. Dasannacharya vs Commissioner of Income Tax-V, Bangalore (Karnataka HC), [2020] 122 taxmann.com 162 (Karnataka)/ [2021] 276 Taxman 433 (Karnataka)/ [2020] 429 ITR 570 (Karnataka) [23-10-2020]
- Commissioner of Income-tax-18 vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. (Bombay HC), [2015] 54 taxmann.com 77 (Bombay)/ [2015] 229 Taxman 226 (Bombay)/ [2015] 370 ITR 325 (Bombay)/ [2015] 273 CTR 430 (Bombay) [11-12-2014]
- CIT v. B.C. Srinivasa Setty (SC), (1981) 128 ITR 294
- Radhasoami Satsang vs. Commissioner of Income-tax (SC), [1992] 60 Taxman 248 (SC)/ [1992] 193 ITR 321 (SC)/ [1991] 100 CTR 267 (SC) [15-11-1991]
- Dai-Ichi Karkaria Ltd. vs. Union of India (SC), 2000 taxmann.com 1350 (SC)/ [2000] 119 ELT 516 (SC) [11-04-2000] (1999) 7 SCC 448 (SC)
- PNB Finance Ltd. v. CIT
- Land Breeze Co-operative Housing Society Ltd. v. ITO, 28 taxmann.com 196
- Land Breeze Co-operative Housing Society Ltd. v. ITO, (2012) 20 taxmann.com 196 (Mumbai)
- Berger Paints India Ltd. v. CIT (2004) 266 ITR 99
- Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 116 Taxman 77 (Bom.)
- ITO v. Kirit Raojibhai Pate l, ITA No. 2339/Mum/2017 (Order dated 14.02.2022)
- ITO v. Lotia Court Co-operative Housing Society Ltd., (2008) 12 DTR 396 (Mum-Trib): 118 TTJ 199 (Mum-Trib)
- Maheshwar Prakash-2 Co-operative Housing Society Ltd. v. ITO, (2009) 313 ITR (AT) 103 (Mum-Trib): 20 DTR 269 (Mum-Trib)
FULL TEXT OF THE ORDER OF ITAT BANGALORE
