Landowner gets Rs 6 crore by selling TDRs received for giving up land for road widening, pays no tax; ITAT Bangalore rules TDR sale taxable as capital gains

When the Bruhat Bengaluru Mahanagara Palike (BBMP) asked Mr Talera from Kasturba Road to give up his land for road widening work, he agreed to it and in return got some transferable development rights (TDRs).

For those who are unaware, TDRs are certificates landowners get when the government acquires privately held land for public use. Landowners can use these TDRs to build extra floors on another property or sell them to builders for development.

In this case, Talera decided to sell his TDR, which he got for giving up 2,839 square metres of land, to a reputed builder for Rs 6 crore. And he did not pay any income tax for this because he assumed that this TDR was a capital receipt and not subject to tax.


However, the Deputy Commissioner of the Income Tax (I-T) Department from Koramangala, Bengaluru, did not agree with Talera’s assumption. The I-T department wanted to bring the full amount of Rs 6 crore under the income tax ambit and levy a capital gains tax on it.

Feeling aggrieved, Talera decided to fight against the Income Tax Department. So, he filed an appeal in the National Faceless Appeal Centre (NAFC, Delhi). On July 8, 2025, Talera lost the case in NAFC so he filed an appeal in ITAT Bangalore.

On August 14, 2026, Talera won the case in a limited way but largely lost, as the ITAT Bangalore ruled that TDR is taxable as capital gains. The ITAT Bangalore ordered the AO to give Talera credit for the cost attributable to the land he had surrendered in exchange for those TDRs.

Chartered Accountant Padam Chand Khincha, Advocate Sudheendra B. represented Mr Talera while the Income Tax Department was represented by Somanath S Ukkali. The ITAT Bangalore bench which decided this case comprised Prashant Maharishi (vice president) and Soundararajan K. (judicial member).

Why did Talera lose the case?

Chartered Accountant Suresh Surana told ET Wealth Online: “The ITAT Bangalore rejected Mr Talera’s assumption that he doesn’t need to pay tax on TDRs, as they have no ascertainable cost of acquisition and thus are essentially a capital receipt not liable for tax.”

The ITAT Bangalore rejected this position and held that the TDRs were capital assets and that their sales attracted capital gains tax.

Talera had relied on the Supreme Court’s case of B.C. Srinivasa Setty and the Bombay High Court’s decision in Sambhaji Nagar Co-operative Housing Society Ltd to make his point about the non-taxability of TDRs.

However, the ITAT Bangalore distinguished the above-mentioned court decisions on the facts and explained that cases such as Sambhaji Nagar involved self-generated development rights, where the taxpayer received additional development potential because of changes in development regulations without giving up a separately identifiable asset.

The ITAT Bangalore distinguished Mr Talera’s case and said that it was materially different because he gave up an identifiable and valuable asset, i.e., his land and building, to obtain the TDRs.

The ITAT Bangalore, therefore, viewed the transaction as involving two stages. First, Mr Talera surrendered his land to BBMP in exchange for the TDRs. Second, he subsequently sold those TDRs for cash.

However, since Section 2(47) defines an exchange as a form of transfer, the ITAT Bangalore held that the TDRs constituted a capital asset acquired in exchange for the land surrendered. Therefore, unlike a self-generated TDR, these TDRs were associated with specific costs linked to the land given up. Thus, the ITAT Bangalore found that Mr Talera had indeed compensated for the TDRs by surrendering his land.

Surana said: “Consequently, the capital gains computation mechanism did not fail, and the Rs. 6.02 crore received on their subsequent sale could not be treated as an exempt capital receipt.”

Mr Talera also argued that his brother had received similar TDR consideration that the income tax department had accepted as exempt in his assessment.

Surana said that the ITAT Bangalore did not accept this as a basis for granting the same treatment and instead observed that an assessment order in another taxpayer’s (in this case Talera’s brother) case does not permanently bind the Income Tax Department, particularly when that order may have accepted the claim without a proper examination of the relevant facts and law.

Each taxpayer’s liability must ultimately be determined in accordance with the law applicable to that taxpayer.

Although the ITAT Bangalore dismissed Mr Talera’s appeal on the question of taxability, but the tax tribunal did not allow the Income Tax Department to dismiss the cost of acquisition angle which in Talera's case is cost of the 2839 sq meters of land since he got the TDRs for giving up this land.

The ITAT Bangalore noticed that the AO had not allowed the cost attributable to the 2,839 square metres of land surrendered to BBMP.

Surana says: “Thus the ITAT Bangalore directed the AO to recompute the capital gains after allowing the appropriate cost of acquisition and other permissible deductions under Section 48.”

Now Talera is liable to pay capital gain tax

Accordingly, Mr Talera will be liable to tax on the capital gain, not automatically on the entire Rs 6.02 crore sale proceeds. The AO must now determine the appropriate cost attributable to the land surrendered and reduce that amount, together with other permissible deductions, while recomputing the taxable capital gain.

Surana said that while Mr. Talera lost his claim that the TDR sale was completely exempt, the ITAT’s Bangalore direction on cost of acquisition could materially reduce the final taxable capital gain and consequential tax liability.