INCOME TAX OFFICER 25(2)(3), MUMBAI V. DEEPAK TALAKSHI SHAH, MUMBAI

ITA 4838/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2181 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 11-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Capital asset; Cost of acquisition; TDS
• Section: 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.4838/M/2017 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER 25(2)(3), MUMBAI VS. MR. DEEPAK TALAKSHI SHAH, PLOT NO.43, FLAT NO.16, BHANUKUNJ, WEST WING ROAD SIDE, VILE PARLE (W), MUMBAI 400 056 PAN: AAFPS4472H (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI SATISH MODI, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 12.06.2019 DATE OF PRONOUNCEMENT : 25.06.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 29.04.2013 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE ISSUE RAISED IN GROUND NO.1 OF APPEAL IS AGA INST THE DELETION OF ADDITION BY LD. CIT(A) AS MADE BY THE AO ON ACCOUNT OF CAPITAL GAIN ON SALE OF TDR DEVELOPMENT RIGHTS W ITHOUT APPRECIATING THE FACT THAT THE ASSESSEES RIGHTS HA VE BEEN EXTINGUISHED BY SALE OF SAID TDR/FSI AND THUS FALL WITHIN THE AMBIT OF CAPITAL ASSET UNDER SECTION 2(14) OF THE A CT. ITA NO.4838/M/2017 MR. DEEPAK TALAKSHI SHAH 2 3. THE FACTS IN BRIEF ARE THAT DURING, THE YEAR ASS ESSEE HAS SOLD TDR/FSI DEVELOPMENT RIGHTS FOR RS.2.50 CRORE WHICH WAS CLAIMED AS EXEMPT FROM INCOME TAX. ACCORDING TO TH E AO THE TRANSFER OF DEVELOPMENT RIGHTS CLEARLY ATTRACTS THE CAPITAL GAIN TAX AS IT IS A TRANSFER OF CAPITAL ASSET. ACCORDIN GLY, THE AO DETERMINED THE MARKET VALUE OF THE TDR/FSI RIGHTS A T RS.5,74,23,000/- AS PER STAMP AUTHORITY VALUATION A S AGAINST RS.5,00,00,000/- DECLARED BY THE RECEIPT FROM SALE OF TDR AND ACCORDINGLY DETERMINED THE CAPITAL GAIN IN THE HAND S OF THE ASSESSEE AT RS.2,87,11,500/-. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE AFTER TAKING INTO CONSIDERAT ION THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE BY HOLD ING THAT THE ASSESSEE HAS ALLOWED THE BUILDER TO LOAD THE FSI/T DR ON THE PLOT AND THEREBY HAS NOT MADE ANY SALE OF LAND AND BUILDING. THE LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS PERMI TTED THE BUILDER TO EXPLOIT THE FSI/TDR AND CONSTRUCT THE N EW BUILDING FOR WHICH THE ASSESSEE HAS INVESTED RS.2.5 CRORE. THE LD. CIT(A) FURTHER HELD THAT AS THE TDR RIGHTS HAVE ARISEN ONL Y DUE TO AMENDMENT OF DC REGULATIONS 1991 AND THEREFORE THE RE IS NO COST OF ACQUISITION AND NO CAPITAL GAIN WOULD BE AT TRACTED. THE LD. CIT(A) ALSO HELD THAT SINCE THERE IS NO SALE OF LAND AND BUILDING AND THEREFORE THE PROVISIONS OF SECTION 50 C OF THE ACT WERE ALSO WRONGLY INVOKED BY THE AO. THE LD CIT(A) DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF CAPITAL GAIN RESULTING FROM SALE OF TDS/FSI RIGHTS BY HOLDING THAT THE SAM E IS NOT CHARGEABLE TO CAPITAL GAIN TAX. ITA NO.4838/M/2017 MR. DEEPAK TALAKSHI SHAH 3 5. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED BEFORE THE BENCH THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SAMBHAJI NAGAR CO-OP. HSG. SOCIETY LTD. (2015) 370 ITR 325 (BOM.) WHEREIN IT HAS BEEN SPECIFICALLY HELD THAT AS THERE IS NO COST OF ACQUISITION INCURRED OF TDR/FS I AS THESE ARE GENERATED BY THE PLOT ITSELF AND THEREFORE ANY RECE IPT ON ACCOUNT OF SALE OF TDR/FSI WOULD NOT RESULT IN CAPITAL GAIN ASSESSABLE TO TAX. THE LD. A.R. THEREFORE PRAYED THAT THE APPEAL OF THE REVENUE MAY KINDLY BE DISMISSED AS THE LD. CIT(A) H AS PASSED THE ORDER AFTER FOLLOWING THE ORDER OF JURISDICTION AL HIGH COURT. THE RELEVANT PORTION OF THE SAID ORDER HAS BEEN REP RODUCED BELOW: HELD, DISMISSING THE APPEAL, THAT IN THE CASE OF T HE ASSESSEE THE FLOOR SPACE INDEX/TRANSFERABLE DEVELOPMENT RIGHT WAS GENERATED BY THE PLOT ITSELF. THERE WAS NO COST OF ACQUISITION, WHICH HAD BEEN DETERMINED A ND ON THE BASIS OF WHICH THE ASSESSING OFFICER COULD HAVE PROCEEDED TO LEVY AND ASSESS THE GAINS DERIVED AS CAPITAL GAINS. ADDITIONAL FLOOR SPACE INDEX/TRANSFE RABLE DEVELOPMENT RIGHT WAS GENERATED BY CHANGE IN THE DEVELOPMENT CONTROL RULE S, 1991. A SPECIFIC INSERTION WOULD, THEREFORE, BE NECESSARY SO AS TO ASCERTAIN I TS COST FOR COMPUTING THE CAPITAL GAINS. THEREFORE, THE TRANSFERABLE DEVELOPMENT RIGH T WHICH WAS GENERATED BY THE PROPERTY AND WAS TRANSFERRED UNDER A DOCUMENT IN FA VOUR OF THE PURCHASER WOULD NOT RESULT IN THE GAINS BEING ASSESSED TO CAPITAL G AINS. THE TRIBUNAL CONCLUDED THAT WHAT THE ASSESSEE SOLD WAS TRANSFERABLE DEVELOPMENT RIGHT RECEIVED AS ADDITIONAL FLOOR SPACE INDEX AS PER THE 1991 RULES. IT WAS NOT A CASE OF SALE OF DEVELOPMENT RIGHTS ALREADY EMBEDDED IN THE LAND ACQUIRED AND OW NED BY THE ASSESSEE. THE TRIBUNAL FOUND THAT THE ASSESSEE HAD NOT INCURRED A NY COST OF ACQUISITION IN RESPECT OF THE RIGHT WHICH EMANATED FROM THE 1991 RULES MAK ING THE ASSESSEE ELIGIBLE FOR ADDITIONAL FLOOR SPACE INDEX. THE LAND AND THE BUIL DING EARLIER IN THE POSSESSION OF THE ASSESSEE CONTINUED TO REMAIN WITH IT. EVEN AFTE R THE TRANSFER OF THE RIGHT OR THE ADDITIONAL FLOOR SPACE INDEX, THE POSITION DID NOT UNDERGO ANY CHANGE. THE REVENUE COULD NOT POINT OUT ANY PARTICULAR ASSET AS SPECIFI ED IN SUB-SECTION (2) OF SECTION 55. THE CONCLUSION OF THE TRIBUNAL WAS IMMINENTLY POSSI BLE ON THE FACTS AND IN THE LIGHT OF THE LEGAL POSITION AS NOTED BY THE LANGUAGE OF S ECTION 55(2). 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDER OF AO BY SUBMITTING THAT THE FSI/TDR FALLS WITHIN THE DEF INITION OF CAPITAL ASSET AS DEFINED UNDER SECTION 2(14) OF THE ACT AND ITA NO.4838/M/2017 MR. DEEPAK TALAKSHI SHAH 4 THEREFORE LIABLE FOR CAPITAL GAIN UNDER THE PROVISI ONS OF SECTION 45 OF THE ACT. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SAMBHAJI NAGAR CO-OP. HSG. S OCIETY LTD. (SUPRA), WE OBSERVE THAT THE HONBLE BOMBAY HIGH CO URT HAS HELD THAT IN CASE OF SALE OF FSI/TDR RIGHTS BY THE ASSESSEE TO THE DEVELOPERS WHICH HAVE ACCRUED IN FAVOUR OF THE ASSESSEE FOLLOWING PROMULGATION OF DEVELOPMENT CONTROL RULES FOR GREATER MUMBAI, 1991AND THE SAID DEVELOPMENTAL RIGHT WERE GENERATED BY THE PLOT ITSELF AND THERE IS NO COST OF ACQUISIT ION AND THEREFORE NOT LIABLE FOR ANY CAPITAL GAIN TAX. IN THE PRESEN T CASE , THE FACTS ARE SIMILAR TO THE FACTS IN THE CASE AS DISCUSSED HEREINABOVE WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT NO CAPITAL GAIN TAX IS ATTRACTED IN THE CASE OF SALE OF FSI/TD R, WE THEREFORE, RESPECTFULLY FOLLOWING THE SAME UPHOLD THE ORDER OF LD. CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 25.06.2019. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 25.06.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// ITA NO.4838/M/2017 MR. DEEPAK TALAKSHI SHAH 5 [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.