NEW SAHYANDRI VIEW CO. OPERATIVE HSG. SOCIETY LTD, MUMBAI V. ITO WD 25(1)(4), MUMBAI

ITA 1906/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54900 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: AARTI VISSANJI
• Keywords: Capital asset; Capital receipt
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D.K. AGARWAL, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.1906/MUM/2009 ASSESSMENT YEAR : 2005-06 NEW SAHYADRI VIEW CO-OPERATIVE HSG. SOCIETY LTD. LOKMANYA TILAK ROAD BORIVALI (W) MUMBAI-400 092. ..( APPELLANT ) P.A. NO. (AACHN 4329 K) VS. INCOME TAX OFFICER WARD 25(1)(4) MUMBAI. ..( RESPONDENT ) APPELLANT BY : MS. AA RTI VISSANJI RESPONDENT BY : SHRI P.C . MAURYA DATE OF HEARING : 4.8.2011 DATE OF PRONOUNCEMENT : 12 TH AUGUST, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 12.1.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING NATURE OF I NCOME EARNED BY THE ASSESSEE FROM THE BUILDER IN PURSUANCE OF CONSENT TERM S SIGNED WITH THE ASSESSEE. 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE AO DU RING THE ASSESSMENT PROCEEDING NOTED THAT THE ASSESSEE HAD DECLARED LO NG ITA NO.1906/M/2009 A.Y:05-06 2 TERM CAPITAL GAINS OF RS.25.50 LACS WHICH HAD BEEN CLAIMED EXEMPT UNDER SECTION 54EA ON THE GROUND THAT THE PROCEEDS HAD BEEN INVESTED IN NABARD BONDS. THE ASSESSEE EXPLAINED THAT TH E AMOUNT HAD BEEN RECEIVED AS COMPENSATION FOR SURRENDER OF RIGHT /INTEREST IN THE REMAINING PORTION OF THE LAND ON WHICH SOCIETY B UILDING WAS SITUATED FROM THE BUILDER AS PER CONSENT TERMS ARRIVED A T BETWEEN THE TWO PARTIES. IT WAS EXPLAINED THAT THE RECEIPT WAS CAP ITAL IN NATURE AND THEREFORE, THE LONG TERM CAPITAL GAINS WAS EXEMPT FROM TAX. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION ON THE GROU ND THAT THE ASSESSEE HAD RECEIVED COMPENSATION FOR FSI OF WHICH THE COST WAS NIL AND THEREFORE, THE SAME COULD NOT BE CONSIDERED AS CAPITA L ASSET. HE ASSESSED THE INCOME AS INCOME FROM OTHER SOURCES. 2.1 IN APPEAL THE ASSESSEE SUBMITTED BEFORE THE CIT(A) T HAT THE BUILDING SAHAYDRI APPARTMENTS CONSISTING OF GROUND PL US UPPER FOUR FLOORS HAD BEEN CONSTRUCTED BY M/S. VEEKAY BUILDERS ASSOCI ATES SOMETIME BETWEEN 1972-74. THERE WERE 26 SHOPS AND 37 RESIDENTIAL FLATS IN THE BUILDING, THE POSSESSION OF WHICH HAD BEEN G IVEN IN THE YEAR 1974 ONWARDS. THE PURCHASERS OF SHOPS AND FLATS HAD FORMED A CO-OPERATIVE SOCIETY WHICH WAS REGISTERED IN THE YEAR 198 6-87. AFTER THE SOCIETY WAS REGISTERED, THE OPEN AREA SURROUNDING TH E BUILDING AND RECREATION GROUND BECAME PROPERTY OF THE SOCIETY UNDER THE PROVISIONS ITA NO.1906/M/2009 A.Y:05-06 3 OF MAHARASHTRA OWNERSHIP FLATS ACT. THE SOCIETY, THEREF ORE, WAS ENTITLED TO BENEFITS OF UNUTILIZED FSI AND RIGHT TO USE TDR ON THE AREA OF LAND OCCUPIED BY THE BUILDING. THE BUILDER, HOWEV ER, DID NOT EXECUTE CONVEYANCE DEED IN RESPECT OF THE SAID PROPERTY. IN THE YEAR 2003, THE ASSESSEE SOCIETY THROUGH A NEWSPAPER READ A NOTICE OF T HE SOLICITORS OF THE BUILDERS REGARDING DEVELOPMENT OF THE PLOT AND IN PARTICULAR A CHAWL, ALSO IN THE SAME PLOT (NOT FORMING PART OF THE SOCIETY) ON WHICH SOCIETY BUILDING WAS SITUATED. THEREAF TER THE ASSESSEE FILED SUIT AGAINST THE BUILDER IN WHICH PRAYER W AS MADE TO THE HONBLE COURT TO PASS A DECREE TO DIRECT THE BUILDER TO CONVEY THE ENTIRE PROPERTY IN FAVOUR OF THE ASSESSEE IN VIEW OF T HE JUDICIAL PRONOUNCEMENTS AVAILABLE ON THE SUBJECT. PURSUANT TO TH E SAID SUIT, THERE WAS OUT OF COURT SETTLEMENT AND AS PER CONSENT TERM S DATED 25.3.2004, THE SOCIETY AGREED TO FOREGO ALL RIGHTS IN RESPECT OF FSI AND TDR IN THE SAID PROPERTY FOR A COMPENSATION OF RS.51.00 LACS OUT OF WHICH A SUM OF RS.25.00 LACS WAS RECEIVED IN THE RELEVANT YEAR. THE RIGHTS OF THE SOCIETY RELATING TO FSI AND TDR WAS CAPIT AL ASSET AND THEREFORE, THE INCOME ARISEN WAS LONG TERM CAPITAL GAIN S WHICH HAD BEEN CLAIMED EXEMPT UNDER THE PROVISIONS OF THE ACT. THE CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OB SERVED BY HIM THAT THE SOCIETY HAD RECEIVED COMPENSATION FROM THE BUILDER TO END THE DISPUTE AND FOR FACILITATING THE WITHDRAWAL O F CIVIL SUIT WHICH ITA NO.1906/M/2009 A.Y:05-06 4 HAD NO CONNECTION WITH THE LEGAL OWNERSHIP AND POSSESSION OF THE SHOPS, RESIDENTIAL FLATS ETC. WHICH HAD ALREADY BEEN CONST RUCTED AND SOLD TO THE MEMBERS LONG BACK BY THE BUILDER. THE CIT (A) ACCORDINGLY CONFIRMED THE ORDER OF THE AO ASSESSING THE INCOME AS INCOM E FROM OTHER SOURCES AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE CIT(A) THAT THE ASSESSEE SOCIETY UNDER T HE PROVISIONS OF MAHARASHTRA OWNERSHIP FLATS ACT AND THE RULES MADE T HEREUNDER HAD RIGHT IN THE AREAS ADJOINING THE BUILDING WHICH BELONGED TO THE SOCIETY AS THE SAME WAS REGISTERED. REFERENCE IN THIS REGA RD WAS MADE TO SECTION 11 OF MAHARASHTRA OWNERSHIP FLATS ACT, 1 963 WHICH REQUIRED THE BUILDERS TO TAKE NECESSARY STEPS TO COMPLETE THE TITLE AND CONVEY TO THE ORGANIZING PERSONS OWNING FLATS WHO ARE E ITHER REGISTERED AS CO-OPERATIVE OR COMPANY, HIS RIGHT, TITLE AND INTEREST IN THE BUILDING AND EXECUTE ALL RELEVANT DOCUMENTS IN ACCO RDANCE WITH AGREEMENT. SHE ALSO REFERRED TO THE RULE-5 AS PER WH ICH THE BUILDER WAS REQUIRED TO ENTER INTO AGREEMENT WITH THE FLAT P URCHASERS IN FORM- V BEFORE TAKING ADVANCE AND THE CLAUSE 4 OF THE SAID F ORM PROVIDED AS UNDER :- THE PROMOTER HEREBY DECLARES THAT THE FLOOR SPACE INDEX AVAILABLE IN RESPECT OF THE SAID LAND IS ITA NO.1906/M/2009 A.Y:05-06 5 .. SQUARE METRES ONLY AND THAT NO PART OF THE SAID FLOOR SPACE INDEX HAS BEEN UTILIZED BY THE PROMOTER ELSEWHERE FOR ANY PURPOSE WHATSOEVER. IN CASE THE SAID FLOOR SPACE INDEX HAS BEEN UTILIZED B Y THE PROMOTER ELSEWHERE, THEN THE PROMOTER SHALL FURNISH TO THE FLAT PURCHASER ALL THE DETAILED PARTICULARS IN RESPECT OF SUCH UTILIZATION OF SAID FLOOR SPACE INDEX BY HI M. IN CASE WHILE DEVELOPING THE SAID LAND THE PROMOTER HA S UTILIZED ANY FLOOR SPACE INDEX OF ANY OTHER LAND OR PROPERTY BY WAY OF FLOATING FLOOR, SPACE INDEX, THE N THE PARTICULARS OF SUCH FLOOR SPACE INDEX SHALL BE DISC LOSED BY THE PROMOTER TO THE FLAT PURCHASER. THE RESIDUAL F.A.R (F.S.I) IN THE PLOT OR THE LAYOUT NOT CONSUME D WILL BE AVAILABLE TO THE PROMOTER TILL THE REGISTRATION OF THE SOCIETY. WHEREAS AFTER THE REGISTRATION OF THE SOCI ETY THE RESIDUAL F.A.R (F.S.I) SHALL BE AVAILABLE TO THE SO CIETY. 3.1 THE LD. AR ALSO REFERRED TO CLAUSE 6 OF THE CONSENT TERMS DATED 25.3.2004 AS PER WHICH THE ASSESSEE HAD CONFIRMED ALL RIGH TS, TITLE AND INTEREST OF THE BUILDER IN CONSIDERATION OF RS.51.00 LA CS AS MUTUALLY AGREED UPON. IT WAS ACCORDINGLY SUBMITTED THAT THE COM PENSATION RECEIVED BY THE ASSESSEE WAS FOR SURRENDER OF RIGHT/INTER EST IN THE PROPERTY WHICH WAS CAPITAL ASSET AND, THEREFORE, THE GA IN HAD TO BE ASSESSED AS LONG TERM CAPITAL GAINS WHICH WAS EXEMPT IN CASE O F THE ASSESSEE AS THE AMOUNT HAD BEEN INVESTED IN NABARD BONDS. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AUTHORIT IES BELOW. IT WAS ARGUED THAT THE ASSESSEE WAS NOT OWNER OF THE PLOT WHICH BELONGED TO THE BUILDER. THE ASSESSEE HAD ONLY BEEN GIVEN COMPENSATI ON FOR WITHDRAWING THE SUIT AND THEREFORE, COMPENSATION HAD N O RELATION TO THE RIGHT/INTEREST OF THE ASSESSEE IN THE PROPERTY AND T HE SAME HAD THEREFORE BEEN RIGHTLY ASSESSED AS INCOME FROM OTHER SOURCE S. ITA NO.1906/M/2009 A.Y:05-06 6 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATUR E OF INCOME ACCRUING TO THE ASSESSEE ON ACCOUNT OF RECEIPT OF RS.25.50 L ACS FROM THE BUILDER AS PER CONSENT TERMS. THE ASSESSEE IS A SOCIETY CONSISTING OF OWNERS OF SHOPS AND FLATS IN THE BUILDING KNOWN AS S AHAYADRI APARTMENTS. THE ASSESSEE IS REGISTERED AS A CO-OPERATIVE SO CIETY IN THE YEAR 1986-87. THESE FACTS HAVE NOT BEEN DISPUTED B EFORE US. UNDER MAHARASHTRA OWNERSHIP FLATS ACT AND THE RULES MAD E THERE UNDER, A PROMOTER OF THE BUILDING IS REQUIRED TO DECL ARE THE FSI AVAILABLE IN RESPECT OF THE LAND AND ALSO DECLARE THAT NO PART OF THE SAID FSI HAS BEEN UTILIZED ELSEWHERE FOR ANY OTHER PUR POSE AND IT SHOULD ALSO DISCLOSE TO THE PURCHASER IF ANY PART OF THE F SI HAS BEEN UTILIZED ELSEWHERE OR IN CASE ANY FSI OF ANY OTHER LAN D OR PROPERTY HS BEEN UTILISED BY WAY OF FLOATING FLOOR, SPACE INDEX, T HE PROMOTER IS REQUIRED TO GIVE DETAIL TO THE PURCHASER. THE RESIDUA L FSI IN THE PLOT WILL BE AVAILABLE TO THE PROMOTER TILL REGISTRATION OF SOCIETY AND AFTER REGISTRATION OF SOCIETY, THE RESIDUAL FSI SHALL BE AVAIL ABLE TO THE SOCIETY. IT IS THUS CLEAR THAT IN VIEW OF THE SAID PROVI SIONS OF MAHARASHTRA OWNERSHIP FLATS ACT, ALL THE OPEN AREA SURRO UNDING THE BUILDING BELONGS TO THE SOCIETY. IN THIS CASE, THE BUIL DER HAD PROPOSED THE DEVELOPMENT OF THE PLOT AND IN PARTICULAR A CHAWL , ALSO IN THE SAME PLOT (NOT FORMING PART OF THE SOCIETY) ON WHICH THE SO CIETY BUILDING ITA NO.1906/M/2009 A.Y:05-06 7 WAS SITATED. THE ASSESSEE CLAIMED THAT THE REMAINING PART OF THE PLOT BELONGED TO THE SOCIETY WHICH WAS ALSO UNDER ITS POSSESSION SINCE LAST MORE THAN 30 YEARS. THE SOCIETY THEREFORE, FILED SUIT REQUESTING THE COURT TO PASS A DECREE DIRECTING THE BUILDER TO CONVEY T HE PROPERTY IN ITS FAVOUR. THEREAFTER THERE WAS MUTUAL SETTLEMENT VI DE CONSENT TERMS DATED 25.3.3004 AS PER WHICH THE ASSESSEE FORGOES ITS RIGH TS AVAILABLE UNDER MAHARASHTRA OWNERSHIP FLATS ACT FOR CONSIDERATION OF RS.51.00 LACS. THE ISSUE IS REGARDING THE NATURE OF INCOME ACCRUED TO THE ASSESSEE ON ACCOUNT OF THE SAID CONSIDERATION. THE RIGHT/IN TEREST OF THE ASSESSEE IN LAND SURROUNDING THE BUILDING UNDER MAHARASHT RA OWNERSHIP FLATS ACT IS DEFINITELY A CAPITAL ASSET. THE A SSESSEE WAS IN POSSESSION OF THE SAID AREA SINCE 1986-87 WHEN IT WAS REGI STERED AS SOCIETY. THE CONSIDERATION HAS BEEN PAID BY THE BUILDE R OBVIOUSLY FOR FORGO THE SAID RIGHT IN THE LAND SO THAT BUILDER CAN CO NSTRUCT A BUILDING. THEREFORE, IN OUR VIEW THE INCOME ARISING IS OF THE NA TURE OF CAPITAL RECEIPT TAXABLE AS CAPITAL GAIN. MERELY ON THE GROUND THAT THE SAID AREA OF LAND WAS NOT REGISTERED IN THE NAME OF SOCIETY, IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT OWNER OF THE PLOT WHICH WAS UNDER ITS POSSESSION AND THE ASSESSEE HAD STATUTORY RIGHT TO OCCUPY IT. FOR ASSESSMENT OF CAPITAL GAIN IT IS NOT NECESSARY THAT THE PROP ERTY SHOULD BE REGISTERED IN THE NAME OF THE HOLDER. CONSIDERING THE ENTIRETY OF ITA NO.1906/M/2009 A.Y:05-06 8 THE FACTS AND CIRCUMSTANCES WE HOLD THAT THE INCOME HAS TO BE ASSESSED AS LONG TERM CAPITAL GAIN. WE ORDER ACCORDINGLY. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.8.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12.8.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.