| Question And Answer | |
|---|---|
| Subject: | Consideration in Form TDR by corporation |
| Category: | Income-Tax |
| Querist: | Vijay Goenka |
| Answered by: | Advocate Neelam Jadhav |
| Tags: | corporation, taxable, TDR |
| Date: | December 6, 2023 |
A land is acquired by Municipal corporation for general public utility such as road, garden. Said acquisition is obtained by registered document and registrar inform said transaction under SFT with ready reckoner value. Said document is showing payment in form TDR as consideration. Subsequently said TDR are sold. My questions are:
- Whether received TDR is taxable as capital gain in year when land is transferred to corporation. If yes at what value being subsequent sale of TDR is much of lower value than shown consideration in sale deed.
- Whether provisions of 50C are applicable to allotted TDR. Said TDR are subsequently sold for much lesser value than considered by corporation.
- Whether subsequent sale of TDR is taxable as short term gain.
1. One has to refer under which provision of the Act the land is acquired if it is as per the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARRA) and notification issued under various Acts the same is not taxable under any Act, including Income-tax Act, 1961 (Act). Section 96 of RFCTLARRA is extracted as under:
“No income tax or stamp duty shall be levied on any award or agreement made under this Act. except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”
Central Board of Direct taxes vide CBDT Circular No. 36 of 2016 dated October 25, 2016 [2016] 388 ITR (Stat) 48 has expressly made it clear that that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARRA shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.
The Hon’ble High Court of Andhra Pradesh in the case of C. Nanda Kumar v. UOI [2017] 396 ITR 21 (AP) (HC) has upheld the above Circular and observed that No tax is liable to be deducted from compensation for compulsory acquisition of land under RFCTLARRA on account of section 96 of RFCTLARRA.
2.The provision of section 50C applies only to the Capital Assets, being Land, Buildings, or both. Here in the aforesaid facts, the Assessee has received TDR in the form of consideration from the Municipal Corporation and subsequently wishes to sell, in such scenario 50C will not apply to the Assessee.
In the case of Smt. Sowmya Sathyan v. ITO [2021] 124 taxmann.com 74 (Bang)(Trib.) held that, Capital asset transferred by the assessee was development rights held by it in land and not that land itself, provisions of section 50C would not be applied.
Further in the case of Kancast (P.) Ltd. vs. ITO [2015] 68 SOT 110 (Pune)(Trib.) held that provisions of section 50C apply only to capital assets being land or building or both, however, said provisions do not apply in case of transfer of leasehold rights in land or building.
3.If the TDR is self generated the sale of TDR does not attract capital gain as while acquiring the TDR, the Assessee does not incur any cost. Further, the consideration received by the Assessee In the form of TDR was a capital receipt and same not chargeable to tax under Section 45. In the case of ITO vs. Kirit Raojibhai Patel, ITA No. 2339 (MUM.) of 2017, dt.14/02/2022 held that the receipts against the sale of TDR were not chargeable to capital gain tax. Followed CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd. [2015] 370 ITR 325 (Bom.)(HC) the sum received on transfer of TDRs which does not have any cost of acquisition cannot be charged to tax under the head “Capital gains”.