In the Commissioner of Income Tax vs. Sambhaji Nagar Co-op Hxg. Society Ltd., it was held that no capital gain should arise on the transfer of Transferable Development Right (TDR) attached to the land owned to the society on which no cost was incurred to acquire.

Facts of the case:

The assessee was a Cooperative Housing Society, with the promulgation of the Development Control Rules, 1991 (DCR). While doing the assessment, the AO noted that with the promulgation of the Development Control Rules, 1991 (DCR), the Assessee Society acquired right of putting up additional construction through TDR. The Society decided to transfered the same which is a capital asset under section 2(14) of the income tax Act, to a Developer for a consideration. 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 TDR. Thus, the said transfer of capital asset shall be chargeable to tax.

On appeal, the Commissioner (Appeals) upheld the order of the AO. Further, a appeal was made to the Tribunal who concluded that the consideration received from the transfer of TDR shall not be chargeable to tax as capital gain.

The Revenue appealed to the High Court.

It was held that:

The High Court highlighted 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 TDR was generated by the plot/property/land and came to be transferred under a document in favour of the purchaser. After the transfer of the right or the additional FSI, the land and building earlier in the possession of the assessee continued to remain with it. Therefore, the said transaction shall not result in the gain being assessed to the capital gains.

In case a capital asset is one which was acquired without incurring any cost of acquisition, then sale value of such assets minus nil is sale value or capital value of assets. In such cases it cannot be said that the sale value is profit or gain. The concept of profit or gain is based on sale value or consideration minus total cost incurred.

The revenue’s appeal was dismissed. Thus, it was held that there shall be no capital gain tax if the cost of acquisition is indeterminate.

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