In a 2023 agreement with the Bruhat Bengaluru Mahanagara Palike, a private property owner gave up 2,839 sq m of land earmarked for road widening and received Transferable Development Rights (TDRs) in return.
TDRs allow a holder to build extra floors elsewhere or sell the rights; the owner chose to sell them to a builder for ₹6.02 crore, believing the proceeds were exempt capital receipts.
The Deputy Commissioner of Income Tax in Koramangala challenged that view, seeking to classify the ₹6 crore as taxable capital gains. The landowner appealed to the NFAC, which dismissed him on July 8 2025.
The case reached the Income Tax Appellate Tribunal, Bangalore, which on Aug 14 2026 held that the sale of TDRs was a transfer of a capital asset and thus subject to capital gains tax under Section 2(47). It also allowed a credit for the cost of the land surrendered.
The ruling confirms that TDRs cannot be treated as exempt receipts, even when derived from land surrendered for public works, and the owner can now file amended returns to settle the tax liability.
The case underscores the need for developers and landowners to seek clear guidance before liquidating TDRs, as the ITAT’s decision signals a shift in tax treatment of such rights.