SBI STAFF CHITRALEKHA CHS LTD, MUMBAI V. CIT-40, MUMBAI

ITA 2526/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5978 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 23-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Fair market value; Set aside; Capital Gains
• Section: 50C; 2(14); 142(1); 143(2); 48; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO. 2526 /MUM/201 9 ( / ASSESSMENT YEAR: 20 15 - 16 ) SBI STAFF CHITRALEKHA CHS LTD. FLAT NO.1603, PREM CHITRALEKHA SAEN GURUJI NAGAR MULUND EAST, MUMBAI - 400081 . / VS. CIT - 40 C - 10, BLDG R. NO.306, PRATYAKSHAKAR BHAVAN, BKC BANDRA EAST, MUMBAI - 400051. ./ ./ PAN/GIR NO. : AAGAS 4096K ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 12/12/2019 /DATE O F PRONOUNCEMENT: 10 /0 2 / 20 20 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 4 . 0 2 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 40 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT (A)] RELEVANT TO THE A.Y. 20 15 - 1 6 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN ADDING RS.3,07,86,423/ - AS STCG AND HAS WRONGLY TREATED THE SAID AMOUNT AS TAXABLE CA PITAL GAIN. THE AO ASSESSEE BY : SHRI DEEPAK TRALSHAWALA REVENUE BY: SHRI SURABHI SHARMA (SR. AR) ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 2 HAS REMARKED THAT THE APPELLANT SOCIETY HAS VIOLATED PROVISIONS OF SECTION 50C BUT THE OBSERVATIONS ARE FACTUALLY WRONG. 2. THE APPELLANT CRAVES LEAVE TO (I) ADD ANY NEW GROUND OF APPEAL AND/OR (II) AMEND, ALTER OR DELETE ANY OF THE AB OVE GROUNDS OF APPEAL . 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 16.03.2017 DECLARING TOTAL INCOME TO THE TUNE OF RS. 3,24,050/ - . THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS A CO - OPERATIVE HOUSING SOCIETY & DERIVES ITS INCOME FROM INTEREST INCOME AND INCOME FROM OTHER SOURCES . THE CASE WAS SELECTED FOR LIMITED SCRUTINY FOR VERIFICATI ON OF SALE CONSIDERATION IN ITR WHIC H WAS LESS THAN SALE CONSIDERATION WRITTEN IN AIR. NECESSARY DETAILS WERE CALLED . ON PERUSAL OF THE REGISTERED SALE - DEED IT WAS OBSERV ED THAT THE ASSESSEE HAS RECEIVED THE CONSIDERATION OF RS. 3,18,54,500/ - ON TRANSFER OF DEVELOPMENT RIGHTS TO THE DEVELOPER S . THE ST AMP DUTY WAS ALSO PAID FOR THE CONSIDERATION OF FAIR MARKET VALUE OF RS.3,19,64,000/ - . THE ASSESSEE HAS GIVEN THE DEVEL OPING RIGHT TO THE HOUSING SOCIETY. THE AO OBSERVED THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 50C OF THE I. T. AC T, 1961, THEREFORE, NOTICE WAS GIVEN AND AFTER THE REPLY OF THE ASSESSEE SHORT TERM CAPITAL GAIN IN SUM OF RS. 3,07,86,423/ - WAS ASSESSED AS INCOME OF THE ASSESSEE. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE CLA IM OF THE ASSESSEE BUT DECLINED THE CLAIM OF THE ASSESSEE ON THE GROUND MENTIONED ABOVE , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 4 . WE HAVE HEARD ARGUMENTS ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD . AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 3 THE ASSESSEE HAS ARGUED THAT THE ASSESSEE IS A SOCIETY AND DID NOT INCUR ANY COST TO ACQUIRE T HE TDR ATTACHED TO LAND OWNED BY IT AND TRANSFERRED THE SAME TO A DEVELOPER FOR A CONSIDERATION FOR CONSTRUCTION OF A FLOOR SPACE AND TRANSFER OF TDR WOULD NOT GIVE RISE TO ANY CAPITAL GAINS CHARGEABLE TO TAX BUT THE CIT(A) HAS WRONGLY CONFIRMED THE ORDER OF AO, THEREFORE, THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE AND IS LIABLE TO BE SET ASIDE. IN SUPPORT OF THIS CONT ENTION, THE LD. REPRESENTATIVE OF THE A SSESSEE HAS PLACED RELIANCE UPON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT - 18 VS. SAMBHAJI NAGAR CO - OP. HSG. SOCIETY LTD. (2015) 54 TAXMANN.COM 77 (BOM). HOWEVER, ON THE OTHER HAND, THE LD. REPRESEN TATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION AND STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. IT IS CORRECT THAT THE ASSESSEE HAS RECEIVED THE CONSIDERATION OF RS. 3,18,54,500/ - ON TRANSFER OF DEVELOPMENT RIGHTS TO THE DEVELO PERS. THE STAMP DUTY WAS ALSO PAID FOR THE CONSIDERATION OF FAIR MARKET VALUE OF RS.3,19,64,000/ - . THE ASSESSEE IS A CO - OPERATIVE SOCIETY WHICH ACQUIRED PLOT OF LAND IN SANE GURUJI NAGAR, MULUND EAST, MUMBAI - 400081 IN VIEW OF THE LETTER DATED 12.0 9.1972 RE GISTERED WITH THE SUB - REGISTRAR OF BOMBAY . THE SOCIETY CONSTRUCTED THE 36 RESIDENTIAL FLATS FOR ITS MEMBERS. THE BUILDING BECAME OLD, THEREFORE, SOCIETY WANTED TO RE - DEVELOP THE BUILDING. THE ASSESSEE EXECUTED AGREEMENT DATED 05.10.2010 AND SUPPLEMENTRY AG REEMENT S DATED 22.06.2011 AND 20.10.2014 WITH ONE M/S. HITESH ENTERPRISES (DEVELOPERS) FOR RE - DEVELOPMENT OF THE EXISTING BUILDING ON THE SAID PROPERTY. ACCORDING TO AGREEMENT, THE SOCIETY HAD ALREADY CONSUMED FSI 1.00 AVAILABLE TO THE SOCIETY AS PER THE O RIGINAL PURCHASE AGREEMENT IN 1972. THE SOCIETY WAS ENTITLED TO ADDITIONAL FSI 1.00 DUE TO CHANGE IN DEVELOPMENT CONTROL ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 4 REGULATIONS IN 1991. REGULATION 33(7) OF THE DEVELOPMENT CONTROL REGULATIONS OF THE MUNICIPAL CORPORATION OF GREATER BOMBAY, 1991 (DCR) PROVIDE FOR THE GRANT OF ADDITIONAL FSI IF AN EXISTING BUILDING IS REDEVELOPED. THE SAID ADDITIONAL FSI CAN BE UTILIZED EITHER FOR THE EXTENSION OF THE EXISTING BUILDING OR FOR THE CONSTRUCTION OF A NEW BUILDING OR MAY BE SOLD FOR A CONSIDERATION. THE SOC IETY TRANSFERRED THE TDR F OR THE CONSTRUCTION OF FLATS. IT IS CONTENDED BY THE LD. R EPRESENTATIVE OF THE ASSESSEE THAT THE SAID AMOUNT WAS TAKEN BY MEMBERS OF SOCIETY IN LIEU OF COMPENSATION TO WHICH THE SOCIETY HAS NO CONCERNED. IT IS ALSO CONTENDED THAT THE ASSESSEE HAS ONLY GIVEN THE PREMISES TO DEVELOP THE SOCIETY AND TO CONSTRUCT THE NEW BUILDING BY ADDING THE ADDITIONAL FLOOR ON THE SAID PROPERTY TO ACCOMMODATE THE NEW MEMBERS BROUGHT BY DEVELOPER TO RECOUP ITS COST OF REDEVELOP MENT . THE SOCIETY NOWHE RE TRANSFERRED FSI AND ASSIGNED THE RIGHTS AND INTEREST IN THE OLD LAND AND BUILDING FOR A MONETARY CONSIDERATION. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ISSUE HAS DULY BEEN COVERED BY THE DECISION OF HONBLE ITAT IN THE CASE OF NEW SHA ILAJA CO - OPERATIVE HOUSING SOCIETY LTD. VS. ITO (2010) 36 SOT 19 (MUM) AND BY DECISION OF THE HONBLE HIGH COURT OF BOMBAY CIT - 18 VS. SAMBHAJI NAGAR CO - OPERATIVE HSG SOCIETY LTD. IN 370 ITR 325 . IN THE CASE OF NEW SHAILAJA CO - OPERATIVE HOUSING SOCIETY LTD. VS. ITO (2010) 36 SOT 19 (MUM) THE HONBLE ITAT HAS GIVEN THE FOLLOWING FINDING .: - 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE CONCEPT OF TDR (TRANSFER DEVELOPMENT RIGHT), AS NOTED BY THE ASSESSING OFFICER ON P . 9 OF THE ORDER WAS INTRODUCED IN MUMBAI IN THE DEVELOPMENT CONTROL RULES, 1991 OF THE BOMBAY MUNICIPAL CORPORATION. THESE RIGHTS ARE GIVEN IN THE FORM OF A DEVELOPMENT RIGHT CERTIFICATE (DRC) WHICH IS ISSUED BY ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 5 THE MUNICIPAL CORPORATION. TDR MEANS THE DE VELOPMENT POTENTIAL THE FSI OF A PLOT OF LAND IS SEPARATED FROM THE PLOT AND IS ALLOWED TO BE TRANSFERRED. TDR CAN BE USED BY THE PERSON/OWNER/LESSEE IN WHOSE FAVOUR IT IS GRANTED ON HIS LAND IN THE RECEIVING ZONE. HE CAN USE IT FULLY OR PARTLY OR SELL IT FULLY OR PARTLY AT WILL. ADVERTING TO THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE BECAME ENTITLED TO THE ADDITIONAL FSI OF AROUND 11,000 SQ. FT. DUE TO ITS LAND HOLDING. THE ASSESSEE TRANSFERRED THIS ENTITLEMENT FOR A CONSIDERATION OF RS. 48.96 LAKHS TO M/S. D.K. BUILDERS. BEFORE THE AUTHORITIES IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT SUCH RIGHT TRANSFERRED BY THE ASSESSEE DID NOT HAVE ANY COST OF ACQUISITION AND HENCE NO CAPITAL GAINS COULD BE COMPUTED. THE SAID CONSIDERATION WAS ONLY TOWARDS THE TRANSFER OF ENTITLEMENT TO THE ADDITIONAL FSI. WE OBSERVE THAT THE ASSESSEE WAS THE OWNER OF THE LAND AND BUILDING AND CONTINUED TO REMAIN THE SAME EVEN AFTER TRANSFER OF THE SAID CAPITAL ASSET. THUS, THE COST OF THE LAND AND BUILDING OF THE EXISTING S TRUCTURE COULD NOT BE ATTRIBUTED TO THE ADDITIONAL FSI RECEIVED BY MEANS OF 1991 RULES. IT IS TRUE THAT SUCH RIGHT IS A CAPITAL ASSET AS PER THE PROVISIONS OF SECTION 2(14) BUT IN ORDER TO COMPUTE CAPITAL GAINS APART FROM THE EXISTENCE OF CAPITAL ASSET, TH ERE SHOULD BE SALE CONSIDERATION ACCRUING AS A RESULT OF TRANSFER OF CAPITAL ASSET AS WELL AS THE COST OF ACQUISITION OF THE ASSET ALONG WITH THE COST OF ANY IMPROVEMENT THERETO, IF ANY. SECTION 48 SETS OUT THE MODE OF COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS BY PROVIDING THAT THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF A CAPITAL ASSET ALONG WITH THE COST OF ACQUISITION AND COST OF ANY IMPROVEMENT, IF ANY, SHALL BE DEDUCTED FROM THE FULL VALUE OF CONSIDERATIO N RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF CAPITAL ASSET. THE HON'BLE SUPREME COURT IN THE CELEBRATED CASE IN CIT V. B.C. SRINIVASA SETTY [1981] 128 ITR 294 HAS HELD THAT TRANSFER OF CAPITAL ASSET WHICH DOES NOT HAVE ANY COST OF ACQUISITION DOES NOT RESULT INTO CAPITAL GAINS CHARGEABLE TO TAX UNDER SECTION 45. THIS JUDGMENT HAS BEEN FOLLOWED IN NUMEROUS CASES. THE LEGISLATURE IN ITS WISDOM BROUGHT OUT CERTAIN CATEGORIES OF CAPITAL ASSETS UNDER SECTION 55(2) AS HAVING COST OF ACQUISITION AT RS. NIL, WHERE SUCH ASSETS HAVE NOT BEEN PURCHASED BY THE ASSESSEE FOR CONSIDERATION. THE EFFECT OF THIS SUB - SECTION IS THAT WHEN THE ASSETS SO SPECIFIED IN SUB - SECTION (2) O F SECTION 55 ARE TRANSFERRED, THEN THE COST OF ACQUISITION HAS BEEN TAKEN AT RS. NIL EXCEPT WHERE THE ASSESSEE HAD ACQUIRED SUCH ASSETS BY MEANS OF PURCHASING FROM THE PREVIOUS OWNER AND THE COMPUTATION OF THE CAPITAL GAINS WOULD BE DONE ACCORDINGLY. THERE ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 6 IS A DIFFERENCE IN THE SITUATION WHEN COST OF ACQUISITION IS RS. NIL AND WHERE THE COST OF ACQUISITION CANNOT BE ASCERTAINED OR NO COST OF ACQUISITION HAS BEEN INCURRED. THE ITEMS OF CAPITAL ASSETS SPECIFIED IN SECTION 55(2) ARE THOSE FOR WHICH THE COST O F ACQUISITION SHALL BE TAKEN AT RS. NIL FOR COMPUTING CAPITAL GAINS. HOWEVER IF THE ASSESSEE HAD NOT INCURRED ANY COST OF ACQUISITION ON A CAPITAL ASSET AND SUCH CAPITAL ASSET DOES NOT FALL IN THE CATEGORY OF THE CAPITAL ASSETS SPECIFIED IN SECTION 55(2) T HEN THE JUDGMENT OF THE HON'BLE SUPREME COURT IN B.C. SRINIVASA SETTY (SUPRA) SHALL APPLY AND NO CAPITAL GAINS WOULD BE CHARGED. 5. COMING BACK TO THE FACTS OF THE INSTANT CASE IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE HAD NOT INCURRED ANY COST OF ACQUISITI ON IN RESPECT OF THE RIGHT WHICH EMANATED FROM THE 1991 RULES MAKING THE ASSESSEE ELIGIBLE TO ADDITIONAL FSI. THE LAND AND BUILDING EARLIER IN THE POSSESSION OF THE ASSESSEE CONTINUED TO REMAIN WITH IT AS SUCH EVEN AFTER THE TRANSFER OF THE RIGHT TO ADDITI ONAL FSI FOR RS. 48.96 LAKHS. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY PARTICULAR ASSET AS SPECIFIED IN SUB - SECTION (2) OF SECTION 55, WHICH WOULD INCLUDE THE RIGHT TO ADDITIONAL FSI. IN OUR CONSIDERED OPINION, NO CAPITAL GAINS CAN B E CHARGED ON THE TRANSFER OF THE ADDITIONAL FSI BY THE ASSESSEE FOR SALE CONSIDERATION OF RS. 48.96 LAKHS FOR THE REASON THAT IT HAS NO COST OF ACQUISITION. OUR VIEW IS FORTIFIED BY THE ABOVEREFERRED ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN JETHALAL D. MEHTA ( SUPRA) WHICH WAS ALSO CITED BEFORE THE LEARNED CIT(A). NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE TO SHOW THAT THE SAID ORDER HAS BEEN MODIFIED OR REVERSED BY THE HON'BLE HIGH COURT. FURTHER THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CONTRARY DECISION. RESPECTFULLY FOLLOWING THE PRECEDENT, WE ACCEPT THIS GROUND OF APPEAL. 6. THE LEARNED AUTHORISED REPRESENTATIVE DID NOT PRESS OTHER GROUNDS OF APPEAL, WHICH ARE HEREBY DISMISSED. 5. THE FACTS OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS OF THE CASE DISCUSSED ABOVE I.E. NEW SHAILAJA CO - OPERATIVE HOUSING SOCIETY LTD. (SUPRA). IN THE SAID CASE ALSO THE ASSESSEE ACQUIRED THE LAND IN THE YEAR 1972 AND CONSTRUCTED THE BUILDING AND SUBSEQUENTLY BY VIRTUE OF REGULATION 33(7) OF THE DEVELOPMENT CONTROL REGULATIONS OF THE MUNICIPAL ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 7 CORPORATION OF GREATER BOMBAY, 1991 (DCR). THE ASSESSEE BECAME ENTITLED TO THE ADDITIONAL FSI. THE ASSESSEE NOWHERE INCURRED ANY COST FOR THE EXECUTION OF THE ADDITIONAL FSI, THEREFORE, THE CONSIDERATION NOW HERE CONSIDERED AS SHORT/LONG TERM CAPITAL GAIN. THIS CONTROVERSY HAS ALSO BEEN ADJUDICATED BY HONBLE HIGH COURT IN THE CASE OF CIT - 18 VS. SAMBHAJI NAGAR CO - OPERATIVE HSG SOCIETY LTD(SUPRA). TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES AND CONSIDER ING THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE, THEREFORE, WE SET ASIDE THE SAME AND DELETE THE ADDITION. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 10 / 0 2 / 2020 SD/ - SD/ - ( R AJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 10 / 0 2 / 2020 V IJAY PAL SINGH/ SR. PS ITA. NO.2526 /M/201 9 A.Y. 2015 - 16 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE CO PY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI