The assessee co-op housing society gave permission to a developer to construct 2 floors and 8 flats on the building belonging to the society by using the TDR / FSI available to the developer. In consideration, the developer paid Rs. 26 lakhs to the assessee and Rs. 66 lakhs to its members aggregating Rs. 92 lakhs.
The AO took the view that the assessee had relinquished its right “to load TDR and construct additional floors” and as there was no cost of acquisition, the entire consideration of Rs. 26 L was assessable as long-term capital gains. On appeal, the CIT (A) took the view that even the amounts received by the Members were assessable in the assessee’s hands. He accordingly enhanced the assessment and directed that the consideration be taken at Rs. 92 L. On appeal by the assessee, HELD reversing the CIT (A):
The assessee – society and its members had no right to construct additional floors on the existing building as they had exhausted the right available while constructing the flats in the building. The TDR was not obtained by the assessee and sold to the developer. Accordingly, the assessee had not transferred any existing right to the developer nor any cost was incurred / suffered prior to permitting the developer to construct the additional floors. In the absence of a cost of acquisition, the judgement in B. C. Srinivasa Setty 128 ITR 294 (SC) applied and the consideration was not assessable as capital gains.
See Also: Lotia Co.op Hsg. Soc. (ITAT Mumbai) & New Shailaja CHS (ITAT Mumbai) where the same view was taken. In Jethalal D. Mehta vs. DCIT 2 SOT 422 (Mum) it was held that the receipts on sale of TDRs were not chargeable to tax even in the hands of the Members. For a full review of the law see Treatise on the law of Real Estate Development Contracts.