Taxability of Transferable Development Rights: Does Every TDR Have a Nil Cost of Acquisition?

Bengaluru ITAT distinguishes self-generated TDR from TDR received against surrender of an existing landholding

Background

The taxability of consideration received on transfer of Transferable Development Rights (TDRs) has been the subject of considerable litigation.

A line of judicial precedents has held that where development rights arise by operation of development regulations, without any identifiable cost being incurred for acquiring those rights, the machinery provisions for computation of capital gains may fail.

The principle traces its foundation to the Supreme Court's decision in CIT v. B.C. Srinivasa Setty, under which an asset for whose acquisition no cost can at all be conceived cannot ordinarily be subjected to capital gains tax through a computation mechanism requiring deduction of cost of acquisition. The Bengaluru ITAT discusses this principle in detail in the present decision.

But does the same principle apply where TDR is received in exchange for surrendering an existing parcel of land?

The Bengaluru Bench of the Income Tax Appellate Tribunal recently examined this distinction in Kamlesh Pukhraj Talera v. DCIT.

The Case

Case: Kamlesh Pukhraj Talera v. Deputy Commissioner of Income Tax
Appeal: ITA No. 1917/Bang/2025
Assessment Year: 2018-19
Bench: ITAT Bengaluru – Bench A
Members: Shri Prashant Maharishi, Vice President and Shri Soundararajan K., Judicial Member
Date of Pronouncement: 14 August 2026

The assessee's appeal arose from an assessment under section 143(3) read with section 144B of the Income-tax Act, 1961.

Facts of the Case

The assessee, an individual, had surrendered 2,839 sq. metres of land to the Bruhat Bengaluru Mahanagara Palike (BBMP) and received TDRs in exchange.

During Assessment Year 2018-19, the assessee transferred those TDRs and received consideration of ₹6,01,53,500.

In the return of income, the amount was disclosed in Schedule EI and claimed as exempt on the footing that the receipt was a capital receipt not chargeable to tax.

The Assessing Officer did not accept this position.

According to the AO, TDR constituted a capital asset under section 2(14) and consideration received upon its transfer attracted capital gains taxation under section 45.

The AO consequently brought the transaction to tax as long-term capital gains. The CIT(A) substantially upheld the taxability, treating the cost of acquisition of the TDR as nil.

The matter consequently reached the Bengaluru ITAT.

The Central Question

The principal controversy before the Tribunal was:

Where TDR is received in consideration for surrender of an existing landholding, can it be said that the TDR has no ascertainable cost of acquisition and, therefore, that the capital gains computation mechanism fails?

The distinction between a self-generated development right and a development right acquired in exchange for an existing asset became crucial.

Assessee's Contentions

The assessee contended that the transfer of TDR was not taxable because no cost of acquisition had been incurred or was capable of being determined.

Accordingly, it was argued that the computation mechanism under section 48 failed and, consequently, capital gains could not be charged.

The assessee also referred to section 55(2)(a) and argued that the amendment made by the Finance Act, 2023—providing, inter alia, for a nil cost in specified cases involving intangible assets or rights where no consideration had been paid—was prospective from Assessment Year 2024-25.

Reliance was placed on several judicial precedents, including:

• CIT v. B.C. Srinivasa Setty;
• CIT v. Sambhaji Nagar Co-operative Housing Society Ltd.;
• Land Breeze Co-operative Housing Society Ltd. v. ITO; and
• other decisions concerning development rights having no identifiable cost of acquisition.

The assessee also relied upon the assessment of his brother, where, according to the order, TDR income of approximately ₹11 crore arising on similar facts had not been taxed. It was contended that parity in treatment should therefore be maintained.

Revenue's Position

The Revenue contended that this was not a case of a TDR arising without cost.

The assessee had surrendered an identifiable asset—his land—to the municipal corporation and had received TDR in consideration.

Accordingly, the Revenue argued that the TDR had a definite cost attributable to the land surrendered. Capital gains were therefore capable of computation.

The Revenue further submitted that an assessment order passed in another assessee's case could not determine the taxability of the present transaction.

What Did the Bengaluru ITAT Hold?

The Tribunal rejected the proposition that the TDR in the present case had no ascertainable cost of acquisition.

Its reasoning rested on the manner in which the TDR had come into existence in the hands of the assessee.

The assessee had surrendered 2,839 sq. metres of land and received TDR in exchange.

Section 2(47), the Tribunal observed, includes an exchange within the meaning of “transfer”.

Accordingly, the Tribunal regarded the transaction as an exchange of the assessee's land for TDR. When those TDRs were subsequently transferred for ₹6,01,53,500, the cost of acquiring the TDR was attributable to the land earlier surrendered.

The Tribunal therefore concluded that:

• the TDR constituted a capital asset;
• there was a transfer of the TDR;
• consideration of ₹6,01,53,500 was received; and
• the cost of acquisition was capable of determination by reference to the land surrendered.

The capital gains computation mechanism under section 48 therefore did not fail.

The Important Distinction: Self-Generated TDR vs. TDR Acquired Against Land

This is the central feature of the decision.

The Tribunal considered the Bombay High Court's decision in CIT v. Sambhaji Nagar Co-operative Housing Society Ltd.

In that case, development rights arose from the assessee's pre-existing landholding by operation of the Development Control Regulations, 1991. No separately identifiable asset had been parted with and no separate cost had been incurred for acquiring those rights.

Applying B.C. Srinivasa Setty, the Bombay High Court had held that where no cost of acquisition could be determined for such self-generated TDR, capital gains could not be assessed.

The Bengaluru ITAT did not disagree with that principle.

Instead, it distinguished those decisions on facts.

The Tribunal observed:

“The present case is materially different.”

Here, the assessee received TDR in exchange for surrendering existing land and building.

Consequently, unlike a regulatory entitlement arising without surrender of another asset, there was an identifiable economic cost attached to acquiring the TDR—the cost attributable to the land surrendered.

This distinction may be represented as follows:

The tax treatment therefore depends not merely upon the description “TDR”, but upon the origin and manner of acquisition of that right.

The Tribunal Identified Two Transfers

Another significant aspect of the order is the Tribunal's observation that the facts involved two transfers.

First transfer

The assessee transferred/surrendered the land and received TDR as consideration.

Second transfer

The assessee subsequently transferred the TDR and received cash consideration of ₹6,01,53,500.

The Tribunal observed that while computing capital gains on the second transfer, the AO had failed to allow the cost attributable to the 2,839 sq. metres of land surrendered to BBMP.

The AO was therefore directed to compute the capital gains correctly by allowing the proper deductions and cost of acquisition.

This is an important nuance.

The Tribunal did not simply hold that the entire TDR sale consideration should be taxable without deduction.

Rather, it held that capital gains were computable because a cost existed, and that such cost had to be appropriately recognised.

What Happens to the “Nil Cost” Argument?

The CIT(A) had proceeded on the basis that the cost of acquisition of the TDR was nil.

The Tribunal's reasoning takes a materially different route.

It found that the cost was not nil merely because no monetary amount had separately been paid for the TDR.

The assessee had parted with land.

That surrender constituted the consideration for obtaining the development rights, and therefore supplied an identifiable basis for determining their cost.

This distinction is particularly relevant when examining TDR transactions:

Absence of a cash purchase price does not necessarily mean absence of cost of acquisition.

An asset exchanged for another asset may carry an ascertainable economic and tax cost even though no money changes hands at the acquisition stage.

Finance Act, 2023 Amendment – Did It Determine the Case?

The assessee had specifically contended that the Finance Act, 2023 amendment to section 55(2)(a), effective from 1 April 2024, was prospective and therefore could not be used to deem the cost of the TDR as nil for Assessment Year 2018-19.

However, the Tribunal's conclusion did not depend upon retrospectively applying that amendment.

Its finding was factual and conceptual: this TDR already had an ascertainable cost because land had been surrendered to acquire it.

Accordingly, the controversy was resolved through the existing capital-gains computation mechanism rather than by treating the TDR as an asset having a statutorily deemed nil cost.

Can Tax Treatment in Another Assessee's Case Determine the Result?

The assessee also relied on the fact that his brother's assessment had allegedly accepted non-taxability of TDR receipts arising on similar facts.

The Tribunal did not accept this as determinative.

The order reasons that an assessment order passed in another case does not create an immutable rule preventing the Revenue from examining taxability in another assessee's case.

Taxability must ultimately be determined with reference to the applicable statutory provisions and the facts of the particular transaction.

This provides another useful reminder:

Consistency is relevant in tax administration, but an assessment outcome in another taxpayer's case does not by itself override the correct application of law.

SSB Perspective

The significance of the Bengaluru ITAT decision lies less in the broad proposition that “TDR is taxable” and more in the distinction it draws between different ways in which TDR can originate.

1. The source of the TDR matters

A TDR arising automatically because of a regulatory change is factually different from a TDR received because an owner surrendered an existing landholding.

The tax analysis should therefore begin with:

How did the taxpayer acquire the TDR?

rather than merely:

Was TDR subsequently sold?

2. “No monetary payment” is not equivalent to “no cost”

Where land or another identifiable asset has been exchanged for TDR, there may be an ascertainable cost even though the taxpayer did not pay cash for acquiring the development rights.

This distinction can materially affect the applicability of the B.C. Srinivasa Setty principle.

3. Earlier TDR precedents require factual comparison

Decisions involving self-generated TDR should not automatically be applied to every transfer of development rights.

Before relying on a precedent, it becomes necessary to compare:

• how the development right arose;
• whether any land/property/right was surrendered;
• whether the right arose merely by regulatory entitlement;
• whether an identifiable cost can be attributed to its acquisition; and
• the relevant statutory provisions applicable to the assessment year concerned.

4. The cost deduction cannot be ignored

The decision is not simply adverse to the taxpayer.

While holding the TDR sale taxable, the Tribunal expressly recognised that the cost attributable to the land surrendered must be considered while computing the capital gain.

The quantification of the cost attributable to the surrendered land therefore becomes an important part of the eventual tax computation.

5. TDR transactions may involve more than one taxable event

The Tribunal's identification of two transfers—first, land for TDR and thereafter TDR for cash—also suggests that the entire transaction chain should be examined rather than viewing only the eventual sale of the TDR.

The tax consequences of each leg require analysis on its own facts and under the law applicable to the relevant year.

Practical Takeaways

For taxpayers, developers and advisers dealing with TDR transactions, the ruling suggests the following review framework:

First: Identify precisely how the TDR was acquired.

Second: Determine whether an existing land/property/right was surrendered in consideration for the TDR.

Third: Examine whether an ascertainable cost can be attributed to the TDR.

Fourth: Do not assume that precedents involving self-generated TDR automatically govern TDR acquired through exchange.

Fifth: Where the TDR was obtained against surrender of land, examine the cost attributable to the surrendered property before computing capital gains on subsequent transfer.

Sixth: Analyse separately the tax consequences of the original exchange and the subsequent monetisation of the TDR.

Conclusion

The Bengaluru ITAT's ruling in Kamlesh Pukhraj Talera draws an important factual line in the taxation of transferable development rights.

The principle that capital gains computation may fail where an asset has no conceivable cost of acquisition continues to remain relevant in the context in which it was developed.

But that principle cannot necessarily be extended to a TDR received in exchange for surrendering an existing capital asset.

Where land is surrendered to obtain the development right, the Tribunal has held that the cost attributable to such land provides an ascertainable cost for the TDR. The subsequent sale of the TDR can therefore give rise to computable capital gains, with the appropriate cost deduction being allowed.

The larger takeaway from the decision may therefore be expressed simply:

For capital gains purposes, the tax character of a TDR cannot be determined by its label alone. How the right came into the taxpayer's hands may determine whether it carries an ascertainable cost.

Case Reference

Kamlesh Pukhraj Talera v. Deputy Commissioner of Income Tax
ITA No. 1917/Bang/2025
Assessment Year 2018-19
Income Tax Appellate Tribunal, Bengaluru – Bench A
Order pronounced on 14 August 2026
Coram: Shri Prashant Maharishi, Vice President and Shri Soundararajan K., Judicial Member.

Publication Details

Publication: SSB Tax Insights
Reference: SSB-TI-2026-003
Published by: SSB & Associates, Chartered Accountants
Author: SSB Editorial Team
Reviewed by: CA C S Sreenivas, Partner
Publication Date: 18^th August 2026

Disclaimer

This publication is intended solely for general information and knowledge sharing and should not be construed as professional advice or opinion. The analysis is based on the facts and findings contained in the judicial decision referred to above. Judicial precedents concerning Transferable Development Rights are fact-sensitive, and their applicability depends upon the manner in which the rights arise or are acquired, the relevant assessment year and the applicable statutory provisions. Readers should examine the underlying facts and applicable law and seek appropriate professional advice before acting on the basis of this publication.

SSB & Associates
Chartered Accountants