TDR is “improvement” of land & if it has no cost, then, even if the land has a “cost”, no part of the gain on transfer of land is taxable

Ishverlal Manmohandas Kanakia vs. ACIT (ITAT Mumbai)

The assessee was the owner of land acquired in 1963. Pursuant to the Development Control Regulations, 1991, the assessee was entitled to construct up to 1:1 FSI on the property. The assessee was also entitled to load Transferable Development Rights (“TDR”) on the property. The assessee entered into a development agreement with a developer pursuant to which the developer agreed to develop on the said land by utilizing the FSI & TDR and paid compensation to the assessee. The assessee claimed that the TDR was an “improvement” of the land and as a “cost of improvement” of the land could not be determined, no capital gains was chargeable. In appeal, the CIT (A) held that the FSI and TDR were separate & distinct assets and that while the TDR did not have a cost, the FSI did and if both were transferred together, there was a “cost” for the “asset” and capital gains was chargeable. On appeal by the assessee, HELD allowing the appeal