Income-tax Act, 1961 — S. 45 — The gain arising on transfer of FSI/TDR is chargeable to tax under the head ‘capital gain’ and not under the head ‘Other Sources’ — However, as there is no cost of acquisition of the asset transferred, there will be no liabi

The assessee, in the year
1977, acquired the property under the registered lease and became co-owner of
the property and was holding 5t shares of the society. The assessee entered into
a development agreement with M/s. P. R. Investsment for the development of the
said property (bungalow) to construct 7-storied building as per approved plans.
The assessee retained proportionate FSI in the said plot for his own residential
accommodation to be constructed by the developer for a consideration of
Rs.21,00,000. The balance FSI was to be utilised by the developer for
construction of the building. The developer was authorised to use the TDR as per
applicable law. Thus, the assessee gave development rights to the developer for
construction of the property. The assessee regarded income arising from transfer
of development rights to be chargeable to tax as capital gains.

The Assessing Officer taxed
the proceeds as Income from other sources on the ground that the assessee had
not extinguished his right, title and interest in the property in any manner and
continued to hold leasehold rights in the property jointly with Shri Anil Kumar
Malhotra. The arrangement under the development agreement, according to the AO,
was to enable the developer to bring in marketable TDR on the plot and construct
and develop the same and sell the constructed area to outside people of his
choice who will have no right, title and interest in the plot of land.

Aggrieved, the assessee
preferred an appeal to the CIT(A) who directed the AO to tax the gain arising on
transfer of FSI/TDR as capital gain and to make necessary calculation of sale
consideration and cost of acquisition and/or improvement and also allow
exemption u/s.54 and u/s.54EC to the extent of investments made, after due
verification.

Aggrieved, the Revenue
preferred an appeal to the Tribunal.

The Tribunal following the
ratio of the decisions of the Tribunal in the case of New Shailaja Co-operative
Housing Society Ltd. v. ITO, (2009 TIOL 58 ITAT-Mum.), ITO v. Lotia Court Co-op.
Hsg. Soc. Ltd., (2008 TIOL 404 ITAT-Mum.), Jethalal D. Mehta v. Dy. CIT, (2 SOT
422) (Mum.) and Maheshwar Prakash 2 CHS v. ITO, 20 DTR 269 (Mum.) held that the
CIT(A) was right in holding that the gain arising on transfer of FSI/TDR is
chargeable to tax under the head ‘capital gain’ and not under the head ‘other
sources’. However, as there is no cost of acquisition of the asset transferred,
there will be no liability to capital gains.