In absence of cost of acquisition of development rights, TDR cannot be taxed as a capital gain. Supreme Court dismissed SLP of Department
ABCAUS Case Law Citation:
ABCAUS 3097 (2019) (08) SC
Important case law relied upon by the parties:
Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom)
Chiranjeev Lal Khanna Vs. ITO
CIT Vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC)
Union of India Vs Cadell Weaving Mill Co. P. Ltd. (2005) 273 ITR 1 (SC)
In the instant case, the only dispute was with respect to taxability of the sale of the development rights (TDR). Before the Assessing Officer (AO), the contention of the respondent assessee was that in absence of any cost of acquisition of the development right, the capital gain tax cannot be charged.
However, the AO rejecting the assessee’s contention had taxed such receipt as a capital gain in the hands of the assessee after granting statutory adjustments.
The Commissioner (Appeals) rejected the assessee’s contention that in absence of any cost of acquisition of the development rights, capital gain tax cannot be levied. The contention of the assessee was that the FSI which was in relation to the constructed fats was never transferred to the builder and the assessee had paid cost for such construction.
The Tribunal was of the opinion that in absence of the cost of acquisition of the development rights, the TDR cannot be taxed as a capital gain.
The Hon’ble High Court observed that the entire issue was squarely covered by the Judgment of Division Bench of the Court. In the said judgment, it was observed that the Hon’ble Supreme Court had held 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 said case, it was observed that the FSI/TDR was generated by the plot itself and thus 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.
The Hon’ble High Court held that taxing the value of fats as a capital gain, the Revenue had proceeded on completely erroneous basis. The assessee had withheld portion of available FSI for fats under consideration which was constructed by the builder at the cost of the assessee and the fats were thus acquired by the assessee. All this was part of agreement between the assessee and the builder.
Not satisfied with the order of the Hon’ble High Court, the Income Tax Department challenged it before the Hon’ble Supreme Court by filing a Special Leave Petition (SLP which was dismissed.
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