AKHAND AABHAR CO. OP. HSG. SOCIETY LTD, MUMBAI V. ASST CIT 19(3), MUMBAI

ITA 2494/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2986 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 30-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Assessee Lawyers: S M BANDI
• Keywords: Capital asset; Cost of acquisition; Reassessment proceedings
• Section: 2(14); 133A; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G S PANNU, AM & SHRI SANJAY GARG, JM ITA NO.2494/MUM/2011 / ASSESSMENT YEAR : 2002 - 03 AKHAND AABHAR CO - OP HSG. SOC. LTD., PLOT NO.332, TPS III, 21 ST ROAD, NEAR HOTEL COMMANDO, BANDRA (W) MUMBAI- 400 050 PAN AAAAA6279N VS ASST CIT 1 9 ( 3 ), MUMBAI ( /APPELLANT) ( /RESPONDENT) APPELLANT BY : S/SHRI VIPUL JOSHI & S M BANDI RESPONDENT BY : SHRI SANJAY SINGH ! '# / DATE OF HEARING :20.07.2015. $% ! '# / DATE OF PRONOUNCEMENT : 20.10.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF THE CIT(A) -30, MUMBAI, DATED 25.01.2011 PERTAI NING TO A.Y. 2002-03. 2. THE ASSESSEE HAS RAISED AS MANY AS EIGHT GROUNDS OF APPEAL, HOWEVER, THE SOLE ISSUE RELATES TO THE TAXING OF SU M OF RS.77,15,157/- AS LONG TERM CAPITAL GAINS U/S. 45 OF THE I.T. ACT ON TRANSFER OF FSI/TDR. 2 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A HOUSING SOCIETY. A SURVEY ACTION U/S. 133A OF THE ACT WAS CONDUCTED ON 31.03.2001 IN THE CASE OF THE ASSESSEE SOCIETY. IT WAS FOUND THAT TH E ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S. DIVINE CONSTRUCTION CO. , THE DEVELOPER VIDE WHICH THE ASSESSEE HAD SOLD THE DEVELOPMENT RIGHTS FOR A CONSIDERATION OF RS.1.40 CRORES. ON THE BASIS OF THE SAID SURVEY AC TION, ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ABOVE STATED A MOUNT OF RS.1.40 CRORES WAS RECEIVED BY THE SOCIETY ON TRANSFER OF DEVELOPM ENT RIGHTS/TDR. HOWEVER, THE ASSESSEE SOCIETY CONTENDED THAT THE SA ID AMOUNT WAS NOT TAXABLE IN THE HANDS OF THE SOCIETY SINCE THE SAME WAS DISTRIBUTED EQUALLY AMONG THE SOCIETY MEMBERS. THE AO HOWEVER, HELD TH AT THE TRANSFER OF FSI IN THE FORM OF TDR WAS AVAILABLE TO THE SOCIETY AND NOT TO THE MEMBER. THE SOCIETY HAD TRANSFERRED THE RIGHT IN THE PROPER TY TO THE DEVELOPER. THE RIGHTS SUCH AS EXCESS FSI/TDR WERE IN THE NATURE OF INTANGIBLE RIGHTS, WHICH ARE EMBEDDED AND FIRMLY ROOTED TO THE RIGHTS IN THE OWNERSHIP OF THE LAND. SUCH RIGHTS BASICALLY FLOW AND EMANATE OUT OF THE R IGHT OF OWNERSHIP OF THE LAND. ANY GAIN ARISING FROM THE SALE/TRANSFER OF S UCH TDR/ FSI WOULD BE FULLY ATTRIBUTABLE TO THE OWNERSHIP RIGHT. THUS, T HE CAPITAL GAIN WILL BE CHARGEABLE TO THE ASSESSEE ON TRANSFER OF TDR/FSI B EING INTANGIBLE PROPERTY AND WOULD FALL WITHIN DEFINITION OF SECTION 2(14) O F THE ACT. HE FURTHER 3 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD OBSERVED THAT THE RIGHTS CREATED BY THE DEVELOPMENT CONTROL REGULATION OF 1991 WERE ATTACHED TO THE LAND OWNED BY THE ASSESSE E SOCIETY WHICH WAS ACQUIRED FOR VALUE GIVEN OR MONEY PAID. THE OWNERS HIP OF THE PLOT ENTITLES THE ASSESSEE TO CONSUME THE PERMISSIBLE FSI. THE T DR RULES EXTEND THE PERMISSIBLE FSI LIMIT OF THE ASSESSEES PLOT OF LAN D. THE EFFECT OF THIS EXTENSION WAS TO SPREAD THE ORIGINAL COST OF LAND O VER INCREASED FSI PROVIDED BY THE DEVELOPMENT CONTROL REGULATION OF 1 991. HE THEREFORE HELD THAT THE PRINCIPLE, WHICH IS APPLICABLE TO BON US SHARES WILL BE APPLICABLE IN THE CASE OF ADDITIONAL FSI, IF ANY, GRANTED TO T HE SOCIETY UNDER THE AMENDED RULES. HE THEREFORE ESTIMATED THE COST OF ACQUISITION OF THE TDR ON THE BASIS THAT THE SAME WAS EMBEDDED IN THE OWNE RSHIP RIGHT OF THE PROPERTY AND TOOK THE VALUE AS ON 01.04.1191 AND CO MPUTED CAPITAL GAIN OVER IT. BEING AGGRIEVED, THE ASSESSEE PREFERRED A PPEAL BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. THUS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS. THE TDR WAS TRANSFERRED BY THE SOCIETY TO THE BUILDER AND THE AMOUNT IN LIEU THERE OF WAS RECEIVED BY THE ASSESSEE SOCIETY WHICH WAS FURTHER DISTRIBUTED AMON G THE MEMBERS OF THE SOCIETY. HENCE, IT IS THE ASSESSEE SOCIETY WHICH TR ANSFERRED THE TDR FOR CONSIDERATION HENCE, THE ENTIRE AMOUNT HAS TO BE CO NSIDERED AS RECEIPT IN THE HANDS OF THE ASSESSEES SOCIETY. 4 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD 5. NOW COMING TO THE ISSUE WHETHER THE CAPITAL GAIN S RECEIVED BY THE ASSESSEE IN LIEU OF TRANSFER OF TDR CAN BE ASSESSED UNDER SECTION 45 OF THE ACT OR NOT, THE BASE DECISION IN THIS RESPECT IS IN THE CASE OF CIT V. B.C. SRINIVASA SHETTY (1981) 128 ITR 294; (1981) 2 SCC 4 60 WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT ALL TRANSACTIONS ENCOMP ASSED BY SECTION 45 MUST FALL WITHIN THE COMPUTATION PROVISIONS OF SECT ION 48. IF THE COMPUTATION AS PROVIDED UNDER SECTION 48 COULD NOT BE APPLIED T O A PARTICULAR TRANSACTION, IT MUST BE REGARDED AS 'NEVER INTENDED BY SECTION 45 TO BE THE SUBJECT OF THE CHARGE'. THE HONBLE SUPREME COURT I N THE CASE OF PNB FINANCE LTD. VS. CIT (2008) 307 ITR 75 HAS REITERA TED THE ABOVE PROPOSITION OF LAW. IN THE CASE OF CIT V. B.C. SRINIVASA SHETTY (SUPRA) THE COURT WAS CONSIDERING WHETHER A FIRM WAS LIABLE TO PAY CAPITA L GAINS ON THE SALE OF ITS GOODWILL TO ANOTHER FIRM. THE COURT FOUND THAT THE CONSIDERATION RECEIVED FOR THE SALE OF GOODWILL COULD NOT BE SUBJECTED TO CAPI TAL GAINS BECAUSE THE COST OF ITS ACQUISITION WAS INHERENTLY INCAPABLE OF BEIN G DETERMINED. THEREAFTER SECTION 55 (2) WAS AMENDED TO PROVIDE THAT THE COST OF ACQUISITION OF, INTER ALIA, A TENANCY RIGHT, GOOD WILL ETC. WOULD BE TAKE N AS NIL. HOWEVER, THE RIGHTS OBTAINED BY WAY OF ADDITIONAL TDR HAVE NOT B EEN INCLUDED IN THE PROVISION NEITHER IN THE CHARGING SECTION 45 NOR IN THE SECTION 48 WHICH PROVIDES MODE OF COMPUTATION. THOUGH THE PARLIAMENT HAS MADE AN AMENDMENT THAT IN CERTAIN TYPE OF ASSETS LIKE GOODW ILL, TENANCY RIGHTS ETC., 5 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD THE COST OF ACQUISITION WOULD BE TAKEN AS ACTUAL CO ST INCURRED AND IF NO COST INCURRED, THE SAME BE TAKEN AT NIL, HOWEVER THE SAI D DEEMING SECTION IS APPLICABLE TO THE ASSETS WHICH HAVE BEEN SPECIFICAL LY BROUGHT WITHIN THE PURVIEW OF THE SAID PROVISION. THE ASSETS OR THE RI GHTS WHICH DO NOT FIND MENTION IN THE RELEVANT PROVISION, CANNOT BE BROUGH T WITHIN THE AMBIT OF CHARGING SECTION, IN THE LIGHT OF THE DECISION OF T HE HONBLE SUPREME COURT. SO FAR AS THE QUESTION THAT THE COST OF ADDITIONAL TDR IS DETERMINABLE OR NOT, THE ISSUE IS NOW SQUARELY COVERED BY THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHAMBAJI NAGAR CO-OPERATIVE HOUSING SOCIETY LTD. 370 ITR 325, WHEREIN HONBLE BOMBAY HIGH COURT WHILE RELYING UPON THE PROPOSITION OF LAW LAID DOW N BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. B.C. SRINIVASA SHETTY (SUPRA) HAS HELD THAT IN THE CASE OF THE SOCIETY ,THE RECEIPT IN LIE U OF TRANSFER OF TDR RIGHTS CANNOT BE SUBJECTED TO CAPITAL GAINS TAX. 6. THE HONBLE HIGH COURT AGREED WITH THE VIEW OF T HE TRIBUNAL THAT THE ASSESSEE HAS NOT INCURRED ANY COST OF ACQUISITION I N RESPECT OF RIGHT WHICH EMANATED FROM THE RELEVANT RULES/ DEVELOPMENT CONTR OL REGULATION MAKING THE ASSESSEE ELIGIBLE TO ADDITIONAL FSI. EVEN AFTE R THE TRANSFER OF THE RIGHT OR THE ADDITIONAL FSI, THE POSITION DID NOT UNDERGO ANY CHANGE. HENCE, NO 6 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD COST OF ACQUISITION WAS INCURRED BY THE ASSESSEE IN RESPECT OF THE TDR OR EVEN THE SAME WAS NOT DETERMINABLE. 7. WE FURTHER FIND THAT IDENTICAL ISSUE HAS BEEN DEC IDED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF L AND BRIDGE CO-OPERATIVE HOUSING SOCIETY LTD VIDE ORDER DATED SEPTEMBER 14, 2012 REPORTED AS (2013) 21 ITR TRIB. 467 (MUM.) WHEREIN IT HAS BEEN HELD THAT THOUGH THE TRANSFERRABLE DEVELOPMENT RIGHT AMOUNTS TO TRANSFER OF CAPITAL ASSET BY THE SOCIETY, HOWEVER, THE SAME COULD NOT BE SUBJECTED T O TAX UNDER THE HEAD CAPITAL GAINS FOR THE REASONS THAT THERE WAS NO C OST OF ACQUISITION IN ACQUIRING THE RIGHT WHICH HAD BEEN TRANSFERRED AND, THEREFORE, THE COMPUTATIONAL MODE GIVEN IN SECTION 48 THUS FAILS. THE MATTER WAS CARRIED BY WAY OF APPEAL BY THE REVENUE TO THE HONBLE BOMB AY HIGH COURT. THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 11.03.2015 PASSED IN ITA NO.334/2013 STYLED AS CIT VS. LAND BRIDGE CO-OPERA TIVE HOUSING SOCIETY LTD. WHILE RELYING UPON THE ANOTHER DECISION OF TH E HONBLE HIGH COURT IN THE CASE OF CIT VS. SHAMBAJI NAGAR CO-OPERATIVE HO USING SOCIETY LTD. 370 ITR 325 UPHELD THE ORDER OF THE TRIBUNAL. HENCE, TH E SAME ANALOGY WILL ALSO APPLY TO THE CASE OF THE ASSESSEE SOCIETY. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT, IT IS HELD THAT THE TDR RECEIPTS IN THE HANDS OF TH E ASSESSEE ARE NOT TAXABLE. 7 ITA 2494/MUM/11 AKHAND AABHAR CO OP HSG. SOC. LTD 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER, 2015. SD/- SD/- (G S PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; &' DATED : 20 TH OCTOBER, 2015. SA '() ! '*+ ,(+' /COPY OF THE ORDER FORWARDED TO : 1. /THE APPELLANT. 2. / THE RESPONDENT. 3. -' ( ) / THE CIT(A), MUMBAI. 4. -' / CIT 5. +./ ' , , / DR, A BENCH, ITAT, MUMBAI '() / BY ORDER, +' ' //TRUE COPY// / 0 1 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI