1. Before delving into the applicability of provisions of Chapter XXC and Taxability of additional FSI and TDR it is a must to understand the concept of TDR.
The Bombay Municipal Corporation (BMC) entrusted with the task of making user of the available land as per the requirements and need felt by the citizens if required to make optimum utilisation of the scarce available land. For implementation of this task under overall development plan the plots are demarcated according to varying land use and for various public utilities under the various plan of the BMC. The Government publishes the priority list every year on the basis of which they demarcate lands / plots in different categories.
The BMC had to face great difficulties in implementing it’s target of using the plot for the purpose for which it is demarcated and meant.
Thus in order to overcome the difficulties faced by the BMC the concept of TDR (Transferable Development Rights) was introduced. This concept was first mooted in the development control rules of 1991. It allows a property owner the right to construct an additional 40 percent floor area over and above the permissible limits under the existing FSI (Floor Space Area). The owner (or lessee) of a plot of land which is reserved for a public purpose in the development plan and for additional amenities deemed to be reservation provided in accordance with these Regulations, excepting in the case of an existing or retention user or to any required compulsory or recreational open space, shall be eligible for the award of Transferable Development Rights (TDRs) in the form of Floor Space Index (FSI). Such award will entitle the owner of the land to FSI in the form of a Development Right Certificate (DRC) which he may use himself or transfer to any other person.
It gives the owner/lessee the right to transfer excess development potential from an ‘Originating Plot’ (which can be in the island city or the suburbs) to a ‘Receivable Plot’ (which is only in the suburbs and always north of the originating plot).
Originating Plots are those which fall under reservations like recreation grounds, playgrounds, schools, markets and roads in the development plan and are handed over to the BMC free of cost, in lieu of which FSI in the form of TDR, is granted and allowed to be used on the receivable plots. The FSI allowed is .4 against reservation and .4 against roads.
In short TDR is a form of FSI which entitles a land owner to construct additonal building on his land. Under TDR, reserved plots are surrendered to BMC for development. Further TDR can be availed only where the individual or corporate entity has a vacant plot of it’s own.
2. The main requisites for obtaining TDR are :
1. Identifying the land under reservation.
2. The land should be in the receiving zones.
3. Acquisition of the particular land by obtaining Development Right Certificate (DRC).
Until the court ruling last year the FSI could not exceed .4 on a receivable plot, however there was a court ruling that .8 FSI could be allowed (clubbing road and reservation TDR) on the same plot.
In a city like Mumbai, where space shortage is a major problem the concept of TDR is very much welcomed by the Builders, Developers and Landlords which are stipulated as under :
2.1 The owner (or lessee) of a plot of land which is reserved for a public purpose in the development plan and for additional amenities deemed to be reservations provided in accordance with these Regulations, excepting in the case of an existing or retention user or to any required compulsory or recreational open space, shall be eligible for the award of Transferable Development Rights (TDRs) in the form of Floor Space Index (FSI) to the extent and on the conditions set out below. Such award will entitle the owner of the land to FSI in the form of Development Right Certificate (DRC) which he may use himself or transfer to any other person.
2.2 Subject to the Regulation 1 above, where a plot of land is reserved for any purpose specified in Section 22 of Maharashtra Regional and Town Planning Act, 1966 the owner will be eligible for development Right (DRs) to the extent stipulated in Regulations 5 and 6 in this Appendix had the land been not so reserved, after the said land is surrendered free of cost as stipulated in Regulation 5 in this Appendix, and after completion of the development or construction as in Regulation in this Appendix if he undertakes the same.
2.3 Development Rights (DRs) will be granted to an owner or a lessee only for reserved lands which are retainable / non-retainable under the Urban Land (Ceiling and Regulations) Act, 1976, and in respect of all other reserved lands to which the provisions of the aforesaid Act do not apply and on production of a certificate to this effect from the Competent Authority under that Act before a Development Right is granted. In the case of non-retainable lands, the grant of Development Rights shall be to such extent and subject to such conditions as Government may specify. Development rights (DRs) are available only in cases where Development of a reservation has not been implemented i.e. TDRs will be available only for prospective development of reservations.
2.4 Development Rights Certificate (DRCs) will be issued by the Commissioner himself. They will state, in figures and in words, tjheFSI credit in square meters of the built-up area to which the owner or lessee of the said reserved plot is mentioned, the place and user zone in which the DRs are earned and the areas in which such credit may be utilised.
2.5 The built up area for the purpose of FSI credit in the form of a DRC shall be equal to the gross area of the reserved plot to the permissible FSI of the zone where from the TDR has originated.
2.6 When an owner or lessee also develops or constructs the amenity on the surrendered plot at his cost subject to such stipulations as may be prescribed by the Commissioner or the Appropriate Authority as the case may be and and to their satisfaction and hands over the said developed/constructed amenity to the Commissioner / Appropriate Authority, free of cost, he may be granted by the Commissioner, a further DR in the form of FSI equivalent to the area of the construction / development done by him, utilisation of which etc. will be subject to the Regulations contained in this Appendix.
2.7 A DRC will be issued only on the satisfactory compliance with the conditions.
2.8 If a holder of a DRC intends to transfer it to any other person, he will submit the DRC to the Commissioner with an appropriate application for an endorsement of the new holder’s name i.e. transferee on the said certificate. Without such an endorsement by the Commissioner himself, the transfer shall not be valid and the certificate will be available for use only by the earlier original holder.
2.9 A holder of a DRC who desires to use the FSI credit certified therein on a particular plot of land shall attach to his application for development permission valid DRCs to the extent required.
2.10 Irrespective of the location of the land in which they originate, DRCs shall not be used in the Island city. They may be used –
(a) On any plot in the same ward as that in which they have originated (neither ward being in the Island city), or
(b) On any plot lying to the north (wholly or partially) of the plot in which they have originated (but not in the Island city).
2.11 A DRC shall not be valid for use on receivable plots in the areas listed below :
(a) Between the tracks of the Western Railway and the Swami Vivekanand Road;
(b) Between the tracks of the Western Railway and Western Express Highway.
(c) Between the tracks of the Central Railway (Main Line) and Lal Bahadur Shastri Road;
(d) On plots falling within 50m. on roads on which no new shops are permitted as speified in Sub-regulation (2) of Regulation 52.
(e) Coastal areas and areas in No Development Zones, Tourism Development Zones, and areas for which the Bombay Metropolitan Region Development Authority or Maharashtra Housing and Area Development Authority is the Special Planning Authority.
(f) On plots for housing schemes of slumdwellers for which additional FSI is permissible under Sub-regulation (10) of Regulation 33;
(g) Areas where the permissible FSI is less than 1.0.
2.12 DRCs may be used on one or more plots of land whether vacant or already developed or by the erection of additional storeys, or in any other manner consistent with these Regulations, but not so as to exceed in any plot total Built Up FSI higher than that prescribed in Regulation 14 in this Appendix.
2.13 The FSI of a receiving plot shall be allowed to be exceeded by not more than 0.4 in respect of a DR available in respect of the reserved plot as in this Appendix and upto a further 0.4 in respect of a DR availanle in respect of land surrendered for road-widening or construction of new roads according to Sub-regulations (1) of Regulation 33.
2.14 DRs will be granted and DRCs issued only after the reserved land is surrendered to the Corporation, where it is Appropriate Authority, otherwise to the State Government as the case may be, free of cost and free of encumbrances, after the owner or lessee has levelled the land to the surrendering ground level and after he has constructed a 1.5m. high compound wall (or at a height stipulated by the Commissioner) with a gate at the cost of the owner, and to the satisfaction of the Commissioner, or the State Government (where the Corporation is not the appropriate authority). The cost of any transaction involved shall be borne by the owner or lessee.
2.15 With an application for development permission, where an owner seeks utilisation of DRs, he shall submit the DRC to the Commissioner who shall endorse thereon in writing, in figures and words, the quantum of the DRC proposed to be utilised, before granting development permission and when the development in complete, the Commissioner shall endorse thereon in writing, in figures and words, the quantum of the DRC proposed to be utilised, before granting development is complete, the Commissioner shall endorse on the DRC in writing in figures and words, the quantum of DRs actually utilised and the balance remaining thereafter, if any, before issue of occupation certificate.
2.16 A DRC shall be issued by the Commissioner himself as a certificate printed on bond paper in aan appropriate form prescribed by the Commissioner. Such a certificate will be transferable as “Negotiable Instument” after due authentication by the Commissioner. The Commissioner shall maintain a register in a form considered appropriate by him of all transactions etc. relating to grant of utilisation of DRs.
2.17 The surrendered reserved land for which a DRC is to be issued shall vest in the Corporation or the State Government, if the appropriate authority is other than the Corporation, and such land shall be transferred in the City Survey Records in the name of the Corporation or the State Government, as the case may be, and shall vest absolutely in the Corporation or the State Government. The surrendered land, so transferred to the State Government in respect of which the Corporation is not the appropriate authority, may, on application, thereafter be allotted by the State Government in favour of the concerned authority, which may be a State or Central Government Department, authority or organisation on appropriate terms as may be decided by the State Government.
2.18 The Commissioner / Appropriate Authority shall draw up in advance and make public from the time to time a phased annual programme (allowing a development) for utilisation of TDRs in the Form of DRs, frioritising revised (draft or sanctioned) development plan reservations to be allowed to be surrendered and indicating the areas for their utilisation on receiving plots. Notwithstanding this, in urgent cases, the Commissioner / Appropriate Authority, may, for reasons to be recorded in writing, grant DRs, as and when considered appropriate and necessary.
Though apart from the aforesaid regulations and the BMC insistance that light and ventilation and additional parking have to be duly provided in TDR Projects.
However, the plight of the common citizens who are faced with TDR problem are pathetic and needs serious considerations by the Government authorities.
Having given the exhaustive note on the TDR concept we now come to the applicability of provisions of Chapter XXC and taxability of TDR right.
I. Applicability of Provisions of Chapter XXC :
We are of the opinion that the provisions of Chapter XXC are not applicable in case of transfer of TDR rights because of the face that the provisions of Chapter XXC are applicable only where there is transfer of Immovable property as stated in Section 269UC which deals with restrictions on transfer of immovable property.
“… 269 UC – Notwithstanding anything contained in the Transfer of Property Act, 1882 (4 of 1882), or in any other law for the time being in force (no transfer of any Immovable Property in such area and of such value exceeding Rs. 75 Lacs, as may be prescribed) shall be effected except after an Agreement for transfer is entered into between the person to whom it is proposed to be transferred (referred to as Transferree) in accordance with the provision of SubSection (2) at least four months before the intended date of transfer…”.
The section clearly states that the provisions of Chapter XXC are applicable only in case of transfer of an immovable property. Whereas TDR is actual land / structure. So the concept of TDR does not fall within the definition of immovable property. So basically it is not transfer of an immovable property.
The concept of transfer of TDR can be correlated to the concept of surrender of Tenancy rights. In the case of surrender of Tenancy rights. In the case of surrender of Tenancy tights too the provisions of Chapter XXC are not applicable and the same principle apply in case of transfer of TDR, because in case of tenancy we are transferring right of occupation and even in TDR we are transferring the right to construct. Hence Chapter XXC provisions do not apply.
However, if the Income Tax Department apply the provisions of Chapter XXC the normally since majority of the transfer of TDR are for consideration less than Rs. 75 Lacs the provisions of Chapter XXC may not be applicable in Mumbai.
Applicability of Provisions of Capital Gains Tax
In this regard we are of the opinion that TDR is received against surrenderd of a portion of land as so the cost of land surrendered will be cost of the TDR. Therefore, in our view TDR surrender will be subject to either short term capital gain or Long Term Capital Gains depending upon the holding period of the land. If the land is held for less than 3 years then it will attract short term capital gains tax and it is held for more than 3 years then it will attract Long Term Capital Gains Tax. The Department can interpret the case as falling within the definition of Capital Asset and rely on the decision of the of the Bombay High Court in CIT, Bombay City I vs. Tata Services Ltd. Wherein provisions of Section 2(14), (47) 45 were interpreted. It was held U/s. 2(14) of the Income Tax Act a capital asset means property of any kind held by an assesse, whether or not connected with his business or profession. The word “property” used in S.2(14) of the Act is a word of the widest amplitude and the definition of “Capital asset”.
Another view can be taken that the surrender of land for TDR acquisition is completely exempt because in case of acquisition of TDR the land which is transferred is different and the TDR right received is different for which there is no cost of acquisition and so when the TDR rights are surrendered there is no capital gains tax liability. The courts have consistently been taking the view that any amount received by an assessee from the transfer of an asset for which no cost can be identified cannot be made eligible for tax.
To substantiate the above points we rely on the following judgements. Though these cases pertain to surrender of tenancy rights issue the facts can be correlated to the facts of the surrender of TDR rights.
1. In CIT vs. B.C. Srinivas Setty 128 ITR 294, the Supreme Court laid down the proposition that a gain arising from the trnasfer of an asset for which no cost could be identified would be outside the computation provisions of Section 48 of the Income Tax Act, 1961.
2. The Delhi High Court in the case of CIT vs. Merchandison Pvt. Ltd. (1990) 40 Taxman 68 , held thant no tax on Capital Gains could be levied in respect of the consideration received on transfer of a tenancy right.
3. Syndicate Bank Ltd. Vs. Addl. CIT (1985), 155 ITR 681 (Kar.)
4. B.G. Shah vs. CIT (1986) 162.
5. CIT vs. H.H. Maharaja Sahib Shri Lokendra Singhhi (1986) 162 ITR 93 (M.P.).
6. CIT vs. Kark 165 ITR 336 (A.P.)
7. Rajabali Nazarali & Sons. Vs. CIT (1987) 163 ITR 7 (Guj.).
8. Godrej & Co. vs. CIT (1959) 37 ITR 381.
9. CIT vs. Panbari Tea Co. Ltd. (1965) 57ITR 422.
Though the aforesaid cases related to surrender of tenancy rights since the facts can be correlated with surrender of TDR rights by applying the principle of no cost no gain in both the cases. Thus there can be one view that no capital gains tax is attracted. However, hereto the revenue authorities in view of the judgements in A.R. Krishna Murthy & Anr. Vs CIT reported in 176 ITR 417 (S.C.) and Cadell Weaving Mills Pvt.Ltd. vs. Asst. Commissioner of Income Tax reported in 55 ITD 137 (Bom. Trib.) may held the same to be taxable. However different view is taken in the case of J.C. Chandok vs. Deputy CIT (1999) 69 ITD 75 (Del) S.B.