PARANUGRAHA CO.OP HSG. SOC. LTD, MUMBAI V. ACIT CIR 19(2), MUMBAI

ITA 280/MUM/2011

• Counselvise Citation: 28019914 RSA 2011
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-01-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 11-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: H N MOTIWALLA SHRI DALPAT SHAH
• Keywords: Capital asset; Cost of acquisition; Competent authority; Capital receipt
• Section: 2(14)

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI . . , !' # $## #% , & !' ' BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 280/MUM/2011 (ASSESSMENT YEAR: 2002-03) PARANUGRAHA CO OP HSG SOC LTD, PARIJAT, NORTH AVENUE, SANTACRUZ (W), MUMBAI -400 054 PAN: AAAAP 1737 A VS ASST. COMMISSIONER OF INCOME TAX CIRCLE -19(2), AAYAKAR BHAVAN, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H N MOTIWALLA SHRI DALPAT SHAH RESPONDENT BY : SHRI K C P PATNAIK /DATE OF HEARING : 22-01-2014 / DATE OF PRONOUNCEMENT : 29-01-2014 ! ( O R D E R $## #% , : PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT(A) -30, MUMBAI, DATE D 01.10.2010, WHEREIN, THE ASSESSEE HAS RAISED THE FOLLOWING GR OUNDS AND ADDITIONAL GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(APPEALS)-30, MUMBAI, HAS ERRED IN CONFIRMING THE TAXABILI TY OF SURPLUS ON SALE OF DEVELOPMENT RIGHTS AS SHORT TERM CAPITAL GAIN IGNORING THE FACT THAT THE SAME HAD NO COST OF ACQUISITION AND HENCE IS NON-TAX ABLE CAPITAL RECEIPT. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE CONTENTION OF THE LD. DY. CIT 19(2), MUMBAI, OF ASSESS ING THE SAID LONG TERM CAPITAL GAIN AS SHORT TERM CAPITAL GAIN, IGNORING THE FA CT THAT THE DEVELOPMENT RIGHTS WERE A PART AND PARCEL OF THE LAND WHICH WAS AN ASSET OF THE SOCIETY WHICH IS MORE THAN 30 YEARS OLD. 1.3 THE LD. CIT (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT YOUR APPELLANT HAD NOT SOLD ANY T.D.R. BUT HAD TRANSFERRED DEVELOPMENT RIGHTS ONLY. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MO DIFY, DELETE AND/OR CHANGE ALL OR ANY OF THE ABOVE GROUND ON OR BEFORE THE DATE OF HEARING. PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 2 ADDITIONAL GROUNDS : 1.4 THE SAID CIT(A) ERRED IN CONFIRMING THE VIEW OF THE S AID AO THAT ONLY PROPORTIONATE COST OF RS. 45,13,035/- OF TDR RELATING TO 6887 SQ.FT. WAS ALLOWABLE IN COMPUTING CAPITAL GAIN WHEN THE CONSIDERATION OF RS. 86,08,750/- RELATED TO DEVELOPMENT RIGHTS FOR CONSTRUCTION OF 6 TH AND 7 TH FLOORS AND ALSO FOR ADDITIONAL CONSTRUCTION IN THE EXISTING BUILDING, REPAIRS TO THE EXISTING BUILDING, MODIFICATIONS IN THE BUILDING TO MAKE IT EARTHQUAKE PROO F ETC. FOR WHICH THE BALANCE TDR OF 2047 SQ. FT. WAS USED AND THEREFORE THE ENTIRE COST OF TDR OF RS. 58,54,430/- WAS ALLOWABLE. 1.5 WITHOUT PREJUDICE TO THE ABOVE, THE SAID CIT(A) ERR ED IN NOT APPRECIATING THE FACT THAT IN COMPUTING CAPITAL GAIN THE SAID AO HAD DEDUCTED ONLY RS. 45,13,035/- BEING PROPORTIONATE COST OF 6887 SQ.FT. OF TDR IGNORING THE PROPORTIONATE COST OF THE SPACE IN THE EXITING BUILDING GIVEN TO THE DEVELOPERS TO CONSTRUCT 6 TH AND 7 TH FLOORS ABOVE THE EXISTING 5 FLOORS IN THE BUILDING. WE REQUEST THE HONBLE MEMBERS TO KINDLY ADMIT THESE AD DITIONAL GROUNDS AS THEY RELATE TO THE COMPUTATION OF CAPITAL GAINS WHICH IS THE M AIN DISPUTE IN THE ABOVE APPEAL. WE HOPE OUR REQUEST WILL RECEIVE KIND CONSIDERATION OF THE HONBLE MEMBERS. 2. THE SOLITARY ISSUE INVOLVED IN THE APPEAL IS THE TREATME NT TO BE ACCORDED TO THE SALE OF T D R BY APPELLANT CHS. 3. THE FACTS AS NOTED BY THE AO ARE THAT THE ASSESSE E ACQUIRED TDR IN THE CURRENT FINANCIAL YEAR FOR 8934 SQ. FT. VIDE AGREEMENT DATED 16.05.2001 AT THE COST OF RS. 42,87,600/- AND SOLD 6887 SQ .FT. TO VARIOUS INDIVIDUALS AT AN AGGREGATE VALUE OF RS. 86,08,750/- IN THE SAME FINANCIAL YEAR. SINCE THE SALE AND PURCHASE OF TDR FE LL IN THE CURRENT YEAR, THE AO HELD THAT IT WAS A CASE OF STCG, INS TEAD OF LTCG SHOWN BY THE ASSESSEE. THE AO, THEREFORE, COMPUTED THE STCG ON 6887 SQ.FT. SOLD AT RS. 40,95,715/- AND BROUGHT THE SAME TO TAX. 4. THE ASSESSEE APPROACHED THE CIT(A), WHO SUSTAINED TH E WORKING AND REASONING ADOPTED BY THE AO AND CONFIRMED THE ADDIT ION MADE BY THE AO. 5. AGGRIEVED THE ASSESSEE IS NOW BEFORE THE ITAT. 6. BEFORE US, THE AR POINTED OUT THAT IN THE INSTANT CAS E, THE ASSESSEE ACQUIRED THE TDR AS PER DC RULES 1991, BROUGH T IN BY THE BMC. SINCE THE TDR IS EMBEDDED TO THE LAND UTILIZATION, THER EFORE, AS PER THE RULES , THE ASSESSEE CHS GOT THE TDR RIGHTS AS FAR BACK AS 1991. PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 3 7. IN SO FAR AS THE ISSUE OF SALE OF TDR WAS CONCERNED, T HE ASSESSEE CHS ALREADY HAVING A UNIT IN EXISTENCE, CONSISTING OF 5 FLOORS INT ENDED TO, EXPLOIT THE TDR , ENTERED INTO DEVELOPMENT RIGHTS WITH 5 PERSONS TO CONSTRUCT 6 TH & 7 TH FLOORS. TO FACILITATE THE IMPENDING TRANSACTION THE ASSESSEE ENTERED INTO AGREEMENTS WITH THE DEVELOPERS (O NE AGREEMENT PLACED IN THE APB I.E. WITH SHRI HEMANT SHAH ) ON 30.04.2001, WHEREIN, AMONGST OTHER CLAUSES, THE FOLLOWING CLAUSES HAVE B EEN AGREED UPON THIS AGREEMENT IS MADE AT BOMBAY THIS 30 TH DAY OF APRIL 2001 BETWEEN PARAGRAPH COOPERATIVE HOUSING SOCIETY LTD., A SOCIETY REGISTERED UNDER THE PROVISIONS OF MAHARASHTRA COOPERATIVE SOCIETIES ACT 1960 UNDER BOM/H MB/2918 OF 1971 AND HAVING ITS REGISTERED OFFICE AT PLOT NO. 52, PARIJAT AP ARTMENTS, NORTH AVENUE, SANTACRUZ(W), MUMBAI -400 054, HEREINAFTER CALLED THE SO CIETY (WHICH EXPRESSION SHALL UNLESS REPUGNANT TO THE CONTEXT HEREOF WILL INCLUDE ITS S UCCESSORS AND ASSIGNS) AND SHRI HEMANT SHAH, RESIDING AT ROOP KALA, WEST AVENUE, SANTACRUZ (W), MUMBAI 400 054, HEREINAFTER REFERRED TO AS DEVELOPER (WHICH EXPR ESSION UNLESS REPUGNANT TO THE CONTEXT HEREOF WILL INCLUDE HIS HEIRS, EXECUTORS, ADMINISTR ATORS AND PERMITTED ASSIGNEES) WE REFER TO THE DISCUSSIONS WE HAD WITH YOU WHEREIN WE HAD INFORMED YOU ABOUT OUR PLANS FOR THE CONSTRUCTION OF THE 6TH AND 7TH FLOORS AS UNDER: 1. 2. THE SOCIETY HAS THE POSSIBILITY OF CONSTRUCTING TWO ADDI TIONAL FLOORS BY PURCHASE OF TRANSFER OF DEVELOPMENT RIGHTS (TDR) AS PER THE DE VELOPMENT CONTROL REGULATIONS IN FORCE. 3. FOR THE SAID PURPOSE THE SOCIETY HAS APPOINTED AN ARCH ITECT WHO HAS VIDE HIS LETTER OF 29 DECEMBER 2000 ADDRESSED TO THE EXECUTIVE ENGINEER, H-WARD, SOUGHT THE PERMISSION FOR THE PURCHASE OF SLUM TDR AN D FOR THE SAID PURPOSE SUBMITTED THE NECESSARY PLANS. THE BRIHAN MUMBAI MUNIC IPAL CORPORATION (BMC) HAS VIDE ITS LETTER DATED 4TH JANUARY 2001 GRANT ED THE SAID PERMISSION AND REQUESTED HIM TO ADVICE HIS CLIENTS I.E. OUR SOCIETY T O PURCHASE THE ADMISSIBLE SLUM TDR AND SUBMIT THE SAME TO BMC FOR UTILIZA TION OF TDR. THUS THE APPROVAL IN PRINCIPLE FOR THE PURCHASE OF TDR HAS BEEN RECEIVED FROM BMC. 4. YOU HAVE IDENTIFIED A FLAT NO. 12 A ADMEASURING APPROX. 1,607 SQ.FT. BUILT-UP AREA EQUAL TO 149.29 SQ.MTS. (F.S.I.) ON 6THFLOOR WHIC H YOU HAVE AGREED TO DEVELOP. THE SOCIETY HAS AGREED TO OFFER YOU THE SAID FLAT FOR DEVELOPMENT ON THE FOLLOWING TERMS AND CONDITIONS. I.. YOU SHALL ARRANGE TO DEPOSIT A SUM OF RS. 14,15,000 /- ON OR BEFORE 30TH APRIL 2001 TO ENABLE THE SOCIETY TO PURCHASE THE TDR. II. III. 5. YOU ALONG WITH THE OTHER DEVELOPERS, HAVE INSISTED DUR ING THE JOINT MEETING WITH ALL DEVELOPERS HELD ON 25/03/01 AT PARIJAT APTS. THAT T HE BUILDING SHOULD BE PROPERLY REPAIRED AND SHOULD BE MADE EARTHQUAKE PROOF AND ALSO NECESSARY MODIFICATIONS SHALL BE MADE TO LOOK IT MODERN. THE SOCIETY SHALL HAVE NO OBJECTION OF YOUR CONTRIBUTING TO CARRY OUT FOR ABOVE WORK FROM THE REPAIR FUND TO BE CREATED FOR THE PURPOSE. 6. TO HAVE UNIFORMITY OF CONSTRUCTION AND SMOOTH WORKING CONDITIONS IT IS AGREED BY YOU ALONG WITH OTHER. DEVELOPERS TO APPOINT A COMMO N ARCHITECT, CONSULTING ENGINEER, CONTRACTORS AND SUPERVISOR WHO WILL WORK UNDE R THE GUIDANCE OF THE SOCIETY AND DEVELOPERS. 7. THE PLANS WILL BE PREPARED BY THE ARCHITECT APPOINTED BY THE SOCIETY AND APPROVED BY THE DEVELOPERS AND SHALL APPLY FOR NECESSA RY APPROVAL FROM B.M.C. AFTER PURCHASING T.D.R. FOR ADDITIONAL WORK. 9. THE CONSIDERATION PAYABLE BY YOU SHALL BE AS FOLLOWS. PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 4 A. RS.1,250/- SQ. FT. OF BUILT-UP AREA FOR GRANT OF DEV ELOPMENT RIGHT WHICH INCLUDES COST OF T.D.R. 8. AS PER THE PRELIMINARY ESTIMATE THE ARCHITECT HAS INF ORMED THAT THE CONSTRUCTION WILL BE COMPLETED IN 15 MONTH, FROM THE DAY C.C. IS OBTA INED SUBJECT TO FORCE MAJOR CONDITIONS. 8. THE AR POINTED OUT, THAT THE AO REPRODUCED THE SUBMISSIONS OF THE ASSESSEE, WHEREIN IT WAS POINTED OUT THAT THE PURC HASE OF THE TDR WAS VIDE AGREEMENT DATED 16.05.2001. IT WAS ON THIS FACTU M, THAT THE AO CONCLUDED SINCE THE ASSESSEE PURCHASED AND SOLD THE TDR IN THE SAME FINANCIAL YEAR, THE ASSESSEE WAS ENTITLED TO STCG AND NOT LTCG . 9. THE AR POINTED OUT THAT TDR IS A BENEFIT GRANTED BY THE BMC TO THE OWNER OF THE LAND AND SINCE THE ASSESSEE WAS THE O WNER OF THE LAND SINCE A VERY LONG TIME, THE TDR GOT EMBEDDED WITH THE OW NER , ON THE APPLICATION OF DC RULES OF 1991, AND HENCE THE ASSESSEE W AS THE OWNER OF TDR SINCE 1991. IT WAS ALSO POINTED OUT THAT IN SO FAR AS THE ASSESSEE IS CONCERNED, NO COST IS INVOLVED. HE ALSO SUBMI TTED THAT ALONG WITH TDR, THE ASSESSEE RECEIVED FSI AND TO MAKE T HE FSI EQUAL TO THE EXISTING FSI ON 1:1 RATIO, IT BOUGHT AN EXTENDED F SI, WHICH ON THE COMPOSITE SALE OF THE DEVELOPMENT RIGHTS GENERATED C ERTAIN LTCG, WHICH HAS BEEN OFFERED FOR TAXATION AT RS. 27,54,320/-. 10. TO SUPPORT THE CONTENTION THAT THE TDR DOES NOT HAVE ANY COST ELEMENT, THE AR PLACED RELIANCE ON THE DECISION OF ACIT VS IGE INDIA LTD, REPORTED IN 58 SOT 62, WHEREIN, THE TRIBUNAL HELD, 11. THUS, IN VIEW OF THE CONSISTENT STAND TAKEN BY THE TRIBUNAL IN ALL THE CASES RELIED UPON BY THE LEARNED COUNSEL, WE HOLD THAT EVEN TH OUGH THE TRANSFER OF TDR AMOUNTS TO TRANSFER OF CAPITAL ASSET, HOWEVER, THE SAME CANNOT BE SUBJECTED TO TAX UNDER THE HEAD CAPITAL GAIN FOR THE REASON THAT THERE IS NO CONST OF ACQUISITION IN ACQUIRING THE FLAT WHICH HAS BEEN TRANSFE RRED AND COMPUTATION MODE GIVEN UNDER SECTION 48, THUS, FAILS IN SUCH CASES. ACCORDINGLY, THE FINDING AND THE VIEW TAKEN BY THE CIT(A) IS UPHELD. 11. HE ALSO PLACED RELIANCE ON THE DECISION OF SAMBHAJI NAG AR CHS VS ITO, ITA NO. 431/MUM/2012, WHEREIN THE COORDINATE BENCH HELD, 11. BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, RELIANCE HAS BEEN PLACED ON BEHALF OF THE ASSESSEE ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NEW SHAILAJA COOPERATIVE HOUSING SOCIETY LTD. IN RESPECT OF ITS CLAIM THAT SALE OF TDR DOES NOT GIVE RISE TO ANY CAPITAL GAI N CHARGEABLE TO TAX. A PERUSAL OF THE DECISION RENDERED BY THE TRIBUNAL IN THE SAID CASE SHOWS THAT THE FACTS INVOLVED IN THE CASE OF NEW SHAILAJA COOPERATIVE HOUSING SOCIETY LTD. ARE EXACTLY SIMILAR TO THAT OF THE PRESENT CASE IN AS MUCH AS THE ASSESSEE SOCIETY IN PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 5 THAT CASE HAD ACQUIRED LAND IN THE YEAR 1972 ALONG WIT H BUILDING THEREON CONSTRUCTED BY USE OF FLOOR SPACE INDEX OF APPROXIMAT ELY 11000 SQ. FEET. BY VIRTUE OF THE ENACTMENT OF THE DEVELOPMENT CONTROL REG ULATION ACT, 1991, THE ASSESSEE BECAME ENTITLED TO AN ADDITIONAL FSI. THE AS SESSEE SOLD SUCH ENTITLEMENT RIGHT TO THE BUILDERS FOR RS.48.96 LAKHS. TH E ASSESSING OFFICER BROUGHT THE INCOME ON SALE OF TRANSFER OF DEVELOPMENT RIGHTS (TDR) TO CAPITAL GAIN TAX WHICH AGAIN WAS UPHELD BY THE LEARNED CIT(A). BE FORE THE TRIBUNAL, THE ASSESSEE CONTENDED THAT SINCE THE TDR TRANSFERRED BY IT DID NOT HAVE ANY COST OF ACQUISITION, NO CAPITAL GAIN COULD BE COMPUTED. THE TR IBUNAL ACCEPTED THIS CONTENTION OF THE ASSESSEE BY HOLDING AS UNDER : THE CONCEPT OF TDR (TRANSFER DEVELOPMENT RIGHT), WA S INTRODUCED IN MUMBAI IN THE DEVELOPMENT CONTROL RULES, 1991 OF THE BO MBAY MUNICIPAL CORPORATION. THESE RIGHTS ARE GIVEN IN THE FORM OF A DEVELOPMENT RIGHT CERTIFICATE (CRC) WHICH IS ISSUED BY TH E MUNICIPAL CORPORATION. TOR MEANS THE DEVELOPMENT POTENTIAL. THE FSI OF A PLOT OF LAND IS SEPARATED FROM THE PLOT AND IS ALLOWED TO BE TRAN SFERRED. TDR CAN BE USED BY THE PERSON/OWNER/LESSEE IN WHOSE FAVOU R 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 I NSTANT CASE, THE ASSESSEE BECAME ENTITLED TO THE ADDITIONAL FS/ OF AROU ND 11,000 SQ. FT. DUE TO ITS LAND HOLDING. IT TRANSFERRED THIS ENTITLEMENT FOR A CONSIDERATION OF RS. 48.96 LAKHS TO 'D'. BEFORE THE AU THORITIES IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT SUCH RIGHT TRANSFERRED BY THE ASSESSEE DID NOT HAVE ANY COST OF ACQUISITION AND, HENC E, NO CAPITAL GAINS COULD BE COMPUTED. THE SAID CONSIDERATION WAS ONLY TOWARDS THE TRANSFER OF THE ENTITLEMENT TO THE ADDITIONAL FSI. THE ASSESSEE WAS THE OWNER OF THE LAND AND BUILDING AND CONTINUED TO REMAIN TH E SAME EVEN AFTER TRANSFER OF THE SAID CAPITAL ASSET. THUS, THE COST OF THE LAND AND BUILDING OF THE EXISTING STRUCTURE COULD NOT BE ATTRIBUTE D TO THE ADDITIONAL PSI RECEIVED BY MEANS OF 1991 RULES. IT IS TR UE THAT SUCH RIGHT IS A CAPITAL ASSET AS PER THE PROVISIONS OF SECTIO N 2(14) BUT IN ORDER TO COMPUTE CAPITAL GAINS APART FROM THE EXISTENCE OF C APITAL ASSET THERE SHOULD BE SALE CONSIDERATION ACCRUING AS A RESULT OF TRAN SFER OF CAPITAL ASSET AS WELL AS THE COST OF ACQUISITION OF THE ASSET A LONG WITH THE COST OF ANY IMPROVEMENT THERETO, IF ANY. SECTION 48 SETS OUT THE MODE OF COMPUTATION OF INCOME UNDER THE HEAD 'CAPITAL GAINS' B Y PROVIDING THAT THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECT ION WITH THE TRANSFER OF A CAPITAL ASSET ALONG WITH THE COST OF AC QUISITION AND COST OF ANY IMPROVEMENT, IF ANY, SHALL BE DEDUCTED FROM THE F ULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TR ANSFER OF CAPITAL ASSET. THE SUPREME COURT IN CIT V. B.C. SRINIVASA SETT Y (1981) 128 ITR 294/5 TAXMAN 1 HAS HELD THAT TRANSFER OF CAPITAL ASSE T WHICH DOES NOT HAVE ANY COST OF ACQUISITION DOES NOT RESULT INTO CAPITA L GAINS CHARGEABLE TO TAX UNDER SECTION 45. THE LEGISLATURE IN ITS WISDOM BROUGHT OUT CERTAIN CATEGORIES OF CAPITAL ASSETS UNDE R SECTION 55(2) AS HAVING COST OF ACQUISITION AT RS. NIL, WHERE SUCH ASSETS HAVE NOT BEEN PURCHASED BY THE ASSESSEE FOR A CONSIDERATION. THE EF FECT OF THIS SUB- SECTION IS THAT WHEN THE ASSETS SO SPECIFIED IN SUB-S ECTION (2) OF SECTION 55 ARE TRANSFERRED, THEN THE COST OF ACQUISITION IS TAK EN AT RS. NIL, EXCEPT WHERE THE ASSESSEE HAS ACQUIRED SUCH ASSETS BY MEANS OF PURCHASING THEM FROM THE PREVIOUS OWNER AND THE COMPUTATION OF THE CAPITAL GAINS WOULD BE DONE ACCORDINGLY. THEM IS A DIFFERENCE IN THE SITUATION WHEN COST OF ACQUISITION IS AT RS. NIL AND WHERE THE COST OF A CQUISITION CANNOT BE ASCERTAINED OR NO COST OF ACQUISITION HAS BEEN INCUR RED. THE ITEMS OF CAPITAL ASSETS SPECIFIED IN SECTION 55(2) ARE THOSE FO R WHICH THE COST OF ACQUISITION SHALL BE TAKEN AT RS. NIL FOR COMPUTING CAPITAL GAINS. HOWEVER, IF THE ASSESSEE HAS NOT INCURRED ANY COST O F ACQUISITION ON A CAPITAL ASSET AND SUCH CAPITAL ASSET DOES NOT FALL IN TH E CATEGORY OF THE CAPITAL ASSETS SPECIFIED IN SECTION 55(2), THEN THE JUD GMENT OF THE SUPREME COURT IN B.C. SRINIVASA SETTYS CASE (SUPRA) SHA LL APPLY AND NO CAPITAL GAINS WOULD BE CHARGED. COMING BACK TO THE FAC TS OF THE INSTANT CASE, IT WAS ABUNDANTLY CLEAR THAT THE ASSESSEE HAD NOT INCURRED ANY COST OF ACQUISITION IN RESPECT OF THE RIGHT WHICH EMANATE D FROM THE 1991 RULES MAKING THE ASSESSEE ELIGIBLE TO ADDITIONAL PSI. THE LA ND AND PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 6 BUILDING EARLIER IN THE POSSESSION OF THE ASSESSEE CONTIN UED TO REMAIN WITH IT, AS SUCH, EVEN AFTER THE TRANSFER OF THE RIG HT TO ADDITIONAL FSI FOR RS. 48.96 LAKHS. THE REVENUE COULD NOT POINT OUT ANY P ARTICULAR ASSET AS SPECIFIED IN SUB-SECTION (2) OF SECTION 55, WHICH WOU LD INCLUDE THE RIGHT TO ADDITIONAL PSI. HENCE, NO CAPITAL GAINS COULD B E CHARGED ON THE TRANSFER OF THE ADDITIONAL FSI BY THE ASSESSEE FOR A SALE CONSIDERATION OF RS. 48.96 LAKHS FOR THE REASON THAT IT HAD NO COS T OF ACQUISITION. 12. IT IS MANIFEST FROM THE ABOVE DECISION OF THE TR IBUNAL RENDERED IN THE CASE OF NEW SHAILAJA COOPERATIVE HOUSING SOCIETY LTD. THAT TH E ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELEVANT T HERETO ARE SIMILAR TO THAT OF THE CASE OF NEW SHAILAJA COOPERATIVE HOUSING SOCIET Y LTD. AND THE DECISION RENDERED IN THE SAID CASE IS SQUARELY APPLICABLE IN THE PRE SENT CASE. WE, THEREFORE, RESPECTFULLY FOLLOW THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF NEW SHAILAJA COOPERATIV E HOUSING SOCIETY LTD. (SUPRA) AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF CAPITAL GAIN ARISING OUT OF SALE OF TDR. GROUND NO.2 IS ACCORDINGLY ALLOWED. 12. IN THE LIGHT OF THESE DECISIONS, THE AR SUBMITTED THAT THE ASSESSEE ACTED ONLY AS A FACILITATOR FOR THE DEVELOPERS T O BUY THE TDR AND ADDITIONAL FSI, WHICH IS EVIDENT FROM CLAUSE 9 OF THE DE VELOPMENT AGREEMENT, AS PLACED ON RECORD (APB 10). 13. THE AR, THEREFORE, SUBMITTED THAT COMPUTATION OF CAP ITAL GAINS ON SALE OF TDR AS STCG WAS MISCONSTRUED BY THE REVENUE AUTHORITIES, SINCE NO COST IS INVOLVED IN ITS ACQUISITION TO THE OWNER. 14. THE DR VEHEMENTLY SUPPORTED THE REVENUE AUTHORIT IES AND ALSO PLACED RELIANCE ON THE DECISION OF SHAKTI INSULATED WIRES LT D VS JCIT, REPORTED IN 87 ITD 56 (MUM) AND PLEADED THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE REVENUE AUTHORITIES AND HENCE THE S AME SHOULD BE SUSTAINED. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUS ED THE MATERIAL PLACED BEFORE US AND THE DECISIONS CITED BEFORE U S. ON GOING THROUGH THE FACTS, THE UNDISPUTED POSITION WAS: A) THAT THE CHS WAS REGISTERED UNDER MAHARASHTRA COO P SOCIETIES ACT, 1960 UNDER CERTIFICATE NO. BOM/HMG/2918 OF 1971; B) AS PER APPENDIX VII-A (REGULATION 34), AND RELEVANT CONDITIONS ARE, 1. THE OWNER (OR LESSEE) OF A PLOT OF LAND WHICH IS RESE RVED FOR A PUBLIC PURPOSE IN THE DEVELOPMENT PLAN AND FOR ADDITIONAL AME NITIES DEEMED TO BE RESERVATIONS PROVIDED IN ACCORDANCE WITH THESE R EGULATIONS, EXCEPTING IN THE CASE OF AN EXISTING OR RETENTION USER OR ANY REQUIRED COMPULSORY OR RECREATIONAL OPEN SPACE, SHALL BE ELIGIBLE FOR THE AWARD OF TRANSFERABLE DEVELOPMENT RIGHTS (TDRS) IN THE FORM OF F LOOR SPACE PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 7 INDEX (FSI) TO THE EXTENT AND ON THE CONDITIONS SET OU T BELOW. SUCH AWARD WILL ENTITLE THE OWNER OF THE LAND TO FSI IN THE F ORM OF DEVELOPMENT RIGHTS CERTIFICATE (DRC) WHICH HE MAY USE HIMSELF OR TRANSFER TO ANY OTHER PERSON. 2. 3. DEVELOPMENT RIGHTS (DRS) WILL BE GRANTED TO AN OWNER OR A LESSEE ONLY FOR RESERVED LANDS WHICH ARE RETAINABLE/NON-RETAINABLE UN DER THE URBAN LAND (CEILING AND REGULATIONS) ACT, 1976, AND IN RES PECT OF ALL OTHER RESERVED LANDS TO WHICH THE PROVISIONS OF THE A FORESAID ACT DO NOT APPLY, AND ON PRODUCTION OF A CERTIFICATE TO THIS EFFE CT FROM THE COMPETENT AUTHORITY UNDER THAT ACT BEFORE A DEVELOPM ENT RIGHT IS GRANTED. IN THE CASE OF NON-RETAINABLE LANDS, THE GRAN T OF DEVELOPMENT RIGHTS SHALL BE TO SUCH EXTENT AND SUBJECT TO SUCH CON DITIONS AS GOVERNMENT MAY SPECIFY. DEVELOPMENT RIGHTS (DR5) ARE AVAILABLE ONLY IN CASES WHERE DEVELOPMENT OF A RESERVATION HAS NOT B EEN IMPLEMENTED I.E. TDRS WILL BE AVAILABLE ONLY FOR PROSPECTIVE DEVELOPMEN T OF RESERVATIONS. 4. 5. 6. 7. 8. IF A HOLDER OF A DRC INTENDS TO TRANSFER IT TO ANY OTHER PERSON, HE WILL SUBMIT THE DRC TO THE COMMISSIONER WITH AN APPROPRIAT E APPLICATION FOR AN ENDORSEMENT OF THE NEW HOLDERS NAME, I.E. TRANSF ERREE ON THE SAID CERTIFICATE. WITHOUT SUCH AN ENDORSEMENT BY THE COMM ISSIONER HIMSELF, THE TRANSFER SHALL NOT BE VALID AND THE CERTIFICATE WILL BE AVAILABLE FOR USE ONLY BY THE EARLIER ORIGINAL HOLDER. 9. A HOLDER OF A DRC WHO DESIRES TO USE THE FSI CRED IT CERTIFIED THEREIN ON A PARTICULAR PLOT OF LAND SHALL ATTACH TO HIS APPLICATION F OR DEVELOPMENT PERMISSION VALID DRCS TO THE EXTENT REQUIRED. 10. C) THE ASSESSEE SOLD THE DEVELOPMENT RIGHTS TO THE DEVELOP ERS PRIOR TO THE RECEIPT OF THE PERMISSIONS FROM DEVELOPMENT COMMISSIONER; D) THE ASSESSEE CHARGED LUMP SUM SALE AMOUNT FROM THE DEVELOPERS, WHICH INCLUDED COST OF TDR TO THE DEVELOPERS. 16. TAKING INTO ACCOUNT THESE FACTS, IT IS FACTUALLY CLEAR T HAT THE TDR IS EMBEDDED IN THE LAND FOR THE PURPOSES OF ADDITIONS MADE BY THE OWNER ( OR LESSEE ). THIS TDR IN THE FORM OF ADDITIONAL FSI IS NEGOTIABLE BY THE OWNER TO THE BUYER/DEVELOPER ONLY FOR PROSPECT IVE DEVELOPMENT. AS IS CLEAR FROM THE EXTRACTED COPY OF THE APPENDIX VII -A (REGULATION 34), THERE IS NO ELEMENT OF COST TO THE OWNER. ON THE BAS IS OF THIS FACTUAL ASPECT, COMING OUT OF DRC ITSELF, THE FIRST ISSUE OF CHARGEABILITY OF CAPITAL GAINS GETS OUSTED , AS, THERE IS NO COST INVOLVED AND PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS B C SHRINIVAS SHETTY, REPORTED IN 128 ITR 294, NO CAPITAL GAIN IS EXIGIBLE. THIS VIEW WAS ADOPTED BY THE COORDINATE BENCHES IN THE CASES OF SAMBHAJI NAGAR ( SUPRA ) AND IGE INDIA LTD. ( SUPRA ). THE ISSUE WAS PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 8 TAKEN CONTRARY , IN THE DECISION OF SHAKTI INSULATED WINES LTD ( SUPRA ). THE DECISION WAS REFERRED TO AND ITS FACTUAL FINDINGS WERE TAKEN NOTE OF IN THE DECISION OF SAMBHAJI NAGAR ( SUPRA ) AND THE CASE WAS FACTUALLY DISTINGUISHED, BEFORE ARRIVING AT THE DECISION IN FAVOUR OF T HE ASSESSEE. SINCE THE PRIMARY ISSUE INVOLVED IN THE CASE AT HAND PERT AINS TO EXIGIBILITY OF CAPITAL GAINS AND ITS TAX TREATMENT, THE ISSUE A T HAND, IS COVERED IN THE CASES OF SAMBHAJI NAGAR ( SUPRA ) AND IGE INDIA LTD ( SUPRA ). 17. ON READING OF THE VARIOUS CLAUSES OF THE DEVELOPMENT AGREEMENT, WHICH HAVE BEEN EXTRACTED AND REPRODUCED EARLIER IN THE ORDER, HOLD THAT THE INSTANT SALE OF TDR WAS ACQUIRED ON BEHALF OF TH E DEVELOPERS AND SOLD NORMALLY TO THE DEVELOPERS ( AS EMERGING FROM THE DEVELOPMENT AGREEMENT ). THIS IS LTCG, BUT, DOES NOT ENTAIL ANY CAPITAL GAIN TAX, A S THERE WAS NO COST INVOLVED WITH THE ASSESSEES CHS. 17. WITH REGARD TO SALE OF ADDITIONAL FSI, WE FIND THAT THE ASSESSEE HAS ITSELF OFFERED THE SAME AS LTCG. 18. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF T HE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF SALE OF TDR AS STCG. 19. ALL GROUNDS OF APPEAL INCLUDING ADDITIONAL GROUNDS ARE TH US ALLOWED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2014. SD/- SD/- ( . . ) ( $## #% ) !' !' (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 29 TH JANUARY, 2014 PARANUGRAHA CO OP HSG SOC LTD ITA 280/MUM/2011 9 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A)-30, MUMBAI 4) THE CIT, CITY -19, MUMBAI, 5) ! '# $% , & '# , '() / THE D.R. H BENCH, MUMBAI. 6) !*+ , COPY TO GUARD FILE. &-./ / BY ORDER / / TRUE COPY / / 0 / 1 (2 & '# , '() DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *%41 . . * CHAVAN, SR. PS