In Real E-State sector Transfer TDR is prominent method for utilizing the potential. Where in Holder of TDR transfer the TDR generated from waving the right, surrendering the eligible area to the requisite Developer for Construction. However, It is been noted that Assessing officer while assessing the case consider such transfer as transfer of Capital Asset under 50C and make addition under Capital Gain. But, there are various judgment of ITAT and Court which has been pronounced in favor of Assessee who are aggrieved to the Order of A.O. which shall discuss as and when,
“Section 50C which governs provision relating to transfer of Capital Asset1 Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both1, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer :
Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:
Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 110 per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.(W.e 1.04.2021)”
From the close view of meaning of Land and Building it is clearly seen that transfer of right i.e TDR, Tenancy right, Lease hold right, cultivation right, are not the capital asset with in a meaning of Land and Building.
In the case of “Income Tax Officer Vs. Shri Yasin MoosaGodil (ITAT Ahemdabad)” upheld that right is not capital asset and therefore section 50C is not applicable.
Further, In the case of “CIT Vs B.C Srinivasa Setty” where in Supreme Court held that transfer of Capital Asset which does not have acquisition cost does not result in to capital gain chargeable to section 45.
Date of Judgement/Order: 25/06/2019
Hon’ble Bombay High Court in the case of CIT vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. has 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.
The present appeal has been preferred by the Revenue against the order dated 29.04.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
2. The issue raised in ground No.1 of appeal is against the deletion of addition by Ld. CIT(A) as made by the AO on account of capital gain on sale of TDR development rights without appreciating the fact that the assessee’s rights have been extinguished by sale of said TDR/FSI and thus fall within the ambit of capital asset under section 2(14) of the Act.
3. The facts in brief are that during, the year assessee has sold TDR/FSI development rights for Rs.2.50 crore which was claimed as exempt from income tax. According to the AO the transfer of development rights clearly attracts the capital gain tax as it is a transfer of capital asset. Accordingly, the AO determined the market value of the TDR/FSI rights at Rs.5,74,23,000/- as per stamp authority valuation as against Rs.5,00,00,000/- declared by the receipt from sale of TDR and accordingly determined the capital gain in the hands of the assessee at Rs.2,87,11,500/-.
4. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after taking into consideration the contentions and submissions of the assessee by holding that the assessee has allowed the builder to load the FSI/TDR on the plot and thereby has not made any sale of land and building. The Ld. CIT(A) has held that the assessee has permitted the builder to exploit the FSI/TDR and construct the new building for which the assessee has invested Rs.2.5 crore. The Ld. CIT(A) further held that as the TDR rights have arisen only due to amendment of DC Regulations 1991 and therefore there is no cost of acquisition and no capital gain would be attracted. The Ld. CIT(A) also held that since there is no sale of land and building and therefore the provisions of section 50C of the Act were also wrongly invoked by the AO. The ld CIT(A) deleted the addition made by the AO on account of capital gain resulting from sale of TDS/FSI rights by holding that the same is not chargeable to capital gain tax.
5. At the outset, the Ld. Counsel of the assessee submitted before the Bench that the case of the assessee is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom.) wherein it has been specifically held that as there is no cost of acquisition incurred of TDR/FSI as these are generated by the plot itself and therefore any receipt on account of sale of TDR/FSI would not result in capital gain assessable to tax. The Ld. A.R. therefore prayed that the appeal of the Revenue may kindly be dismissed as the Ld. CIT(A) has passed the order after following the order of jurisdictional High Court. The relevant portion of the said order has been reproduced below:
“Held, dismissing the appeal, that in the case of the assessee the floor space index/transferable development right was generated by the plot itself. There was no cost of acquisition, which had been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. Additional floor space index/transferable development right was generated by change in the Development Control Rules, 1991. A specific insertion would, therefore, be necessary so as to ascertain its cost for computing the capital gains.
Therefore, the transferable development right which was generated by the property and was transferred under a document in favour of the purchaser would not result in the gains being assessed to capital gains. The Tribunal concluded that what the assessee sold was transferable development right received as additional floor space index as per the 1991 Rules. It was not a case of sale of development rights already embedded in the land acquired and owned by the assessee. The Tribunal found that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible for additional floor space index. The land and the building earlier in the possession of the assessee continued to remain with it. Even after the transfer of the right or the additional floor space index, the position did not undergo any change. The Revenue could not point out any particular asset as specified in sub-section (2) of section 55. The conclusion of the Tribunal was imminently possible on the facts and in the light of the legal position as noted by the language of section 55(2).”
6. The Ld. D.R., on the other hand, relied on the order of AO by submitting that the FSI/TDR falls within the definition of capital asset as defined under section 2(14) of the Act and therefore liable for capital gain under the provisions of section 45 of the Act.
7. After hearing both the parties and 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. (supra), we observe that the Hon’ble Bombay High Court has 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.
