ITO 21(1)(4), MUMBAI V. RAM KUMAR MALHOTRA, MUMBAI

ITA 4843/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2108 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 21-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: AJAY R SINGH
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 54EC; 54; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 4843/MUM/2009 ASSESSMENT YEAR-2006-07 THE ITO 21(1)(4), PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA, MUMBAI VS. SHRI RAM KUMAR MALHOTRA, 39, SWARA, 11 TH ROAD, VITHAL NAGAR CHS, JVPD SCHEME, JUHU, MUMBAI-400 049 PAN - AAGPM6573J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PEEYUSH JAIN RESPONDENT BY: SHRI K. S HIVRAM & SHRI AJAY R. SINGH O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 19.6.2009 PASSED BY THE LD. CIT(A)-XXI, MUMBAI FOR THE ASSESSMENT YEAR 2006-07. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE ACQU IRED THE PROPERTY UNDER THE REGISTERED LEASE DT. SEPT. 1977 AND BECOM E THE CO-OWNER OF THE PROPERTY AND WAS HOLDING 5 SHARES OF THE SOCIETY. THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITH M/S. P.R. INVESTM ENT FOR DEVELOPMENT OF THE SAID PROPERTY (BUNGALOW) TO CONSTRUCT 7 STOR IES BUILDING AS PER THE APPROVED PLANS. THE ASSESSEE RETAINED PROPORTIONAT E PORTION OF FSI IN THE SAID PLOT FOR THEIR OWN RESIDENTIAL ACCOMMODATI ON TO BE CONSTRUCTED BY THE DEVELOP2ER FOR A CONSIDERATION OF RS. 21,00, 000/-. THE BALANCE FSI WAS UTILIZED BY THE DEVELOPER FOR CONSTRUCTION OF THE BUILDING. THE DEVELOPER WAS AUTHORIZED TO USE THE TDR AS PER APPL ICABLE LAW FOR THE ITA NO. 4843/M/09 2 DEVELOPMENT OF THE PLOT. BY THIS ARRANGEMENT, THE ASSESSEE HAD GIVEN DEVELOPMENT RIGHTS TO THE DEVELOPER FOR CONSTRUCTIO N OF THE PROPERTY. TRANSFER OF DEVELOPMENT RIGHTS BEING CAPITAL ASSET, THE INCOME ARISING FROM THE SALE THEREOF RESULTS IN CAPITAL GAINS. SI NCE THE ASSESSEE RETAINED SUCH RIGHTS FOR MORE THAN 36 MONTHS, IT WAS TREATED AS LONG TERM CAPITAL GAINS. 3. THE ASSESSING OFFICER HELD THAT THE RECITALS OF THE AGREEMENT CLEARLY AND UNAMBIGUOUSLY SHOW THAT THE ASSESSEE HAD NOT E XTINGUISHED HIS RIGHT, TITLE AND INTEREST IN THE PROPERTY IN ANY MA NNER AND CONTINUES TO HOLD THE LEASE RIGHTS OF THE PROPERTY JOINTLY WITH SHRI ANIL KUMAR MALHOTRA. THE AO ALSO HELD THAT THE ARRANGEMENT BY WAY OF THIS DEVELOPMENT AGREEMENT IS TO ENABLE THE DEVELOPER TO BRING IN MARKETABLE TDR ON THE PLOT AND CONSTRUCT AND DEVELOP THE SAME AND SELL THE CONSTRUCTED AREA OF TDR TO THE OUTSIDE PEOPLE OF HI S CHOICE, BEING PEOPLE WITH NO RIGHT, TITLE AND INTEREST IN THE PLOT OF LA ND. ACCORDINGLY, THE AO HELD THAT IT IS A CASE OF GETTING A COMPENSATION FO R LOADING AND DEVELOPING TDR BY NEW STRUCTURE AND THEREFORE THE PROCEEDS ARE IN THE NATURE OF INCOME FROM OTHER SOURCES. 4. BEFORE THE LD. CIT(A) THE AUTHORISED REPRESENTAT IVE OF THE ASSESSEE MADE DETAILED SUBMISSION WHICH IS AS UNDER: THE LD. AR STATED THAT AS PER THE TERMS OF DEVELOPME NT, THE ASSESSEE WAS ENTITLED FOR CARPET AREA OF 2000 SQ. FT . AND OPEN TERRACE OF 575 SQ.FT FOR A COST OF RS. 21,00,000/- TO BE APPROPRI 9ATED AGAINST THE SALE CONSIDERATION PAYABLE TO THE ASSESSEE AMOUNTING TO RS. 2.56 CRORES. FURTHER, THE DEVELOPER WAS ALSO AUTHORIZED TO USE TH E TDR AS APPLICABLE. THE RIGHT, TITLE AND INTEREST IN THE PLOT HAVE NOT BEEN TRANSFERRED, BUT THE NEW MEMBERS WHO ACQUIRE THE DEVELOPED PROPERTY WAS TO BE ADMITTED AS NOMINAL MEMBERS OF THE SOCIETY. OUT OF TOTAL CONSIDE RATION, THE ASSESSEE MADE AN INVESTMENT OF RS. 1 CRORE IN NABARD & SIDBI CAPITAL GAINS BONDS AND THEREFORE SHOWED THE LONG TERM CAPITAL GAIN S AT NIL IN THE RETURN OF INCOME. ITA NO. 4843/M/09 3 THE LD. AR FURTHER MADE DETAILED SUBMISSIONS IN WHIC H HE HAS DWELT UPON THE DEFINITION OF CAPITAL ASSET AND HAS CLAI MED THAT DEVELOPMENT RIGHTS IN A PROPERTY IS ALSO A PROPERTY BY ITSELF AND WOULD BE INCLUDED IN THE EXPRESSION CAPITAL ASSET. THE OWNER SHIP OF PROPERTY IS A BUNDLE OF RIGHTS AND IT INCLUDES OWNERSHIP OVER THE D EVELOPMENT POTENTIAL OF THE LAND. THE ASSESSEE MADE THE FOLLOWI NG SUBMISSIONS TO CLAIM THAT TDR LOADED AND SUBSEQUENT TRANSFER INVOLVES TRANSFER OF CAPITAL ASSET: IT IS RESPECTFULLY SUBMITTED THAT THE FACT THAT TH E DEVELOPMENT RIGHTS ARE CAPITAL ASSETS IS FURTHER SU BSTANTIATED FROM THE FACT THAT DEVELOPMENT RIGHTS ARE IMMOVABLE PROP ERTY AND ARE CAPABLE OF SPECIFIC PERFORMANCE. RECENTLY THE BOMBAY HIGH COURT IN CHHEDA HSG. DEV. CORPN. A PARTNERSHIP FIRM VS BIBIJAN SHAIKH FARID & ORS. 2 007 (3) MHLJ 402 (BOM) DEALING WITH THE SPECIFIC PERFORMANCE OF AGREEMENT FOR USE OF TDR I.E. DEVELOPMENT AGREEMENT HELD THAT FSI/TDR AR E BENEFIT ARISING FROM THE LAND CONSEQUENTLY MUST BE HELD AS IMMOVABLE PROPERTY. 5. THE LD. CIT(A) HELD AS FOLLOWS: ONCE IT HAS BEEN DECIDED THAT SALE OF FSI IN THE F ORM OF DEVELOPMENT RIGHTS RESULTS INTO CAPITAL GAINS, IT I S CRYSTAL CLEAR THAT THE COMPENSATION RECEIVED BY THE APPELLANT HAS TO BE ASSESSED AS CAPITAL GAINS. THE LOADING OF TDR HAS BEEN POSSIBLE ON THE PLOT OF LAND IN QUESTION ONLY ON AC COUNT OF THE OWNERSHIP RIGHT OF THE APPELLANT SUBSISTING IN THE PIECE OF LAND. TRANSFER OF SUCH TDR TO THE DEVELOPER THROUG H DEVELOPMENT AGREEMENT, THEREFORE, CLEARLY RESULTS I N CAPITAL GAINS. THE AO IS, ACCORDINGLY, DIRECTED THAT THE G AIN ARISING ON TRANSFER OF FSI/TDR RIGHTS BE ASSESSED AS CAPITA L GAIN FOR WHICH HE WILL MAKE THE NECESSARY CALCULATION OF SAL E CONSIDERATION AND COST OF ACQUISITION AND/OR IMPROV EMENT. HE WILL ALSO ALLOW EXEMPTION U/S. 54 & 54EC OF THE I.T . ACT, 1961 TO THE EXTENT OF INVESTMENTS MADE, AFTER DUE VERIFI CATION. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), REVENU E IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SHRI SHIVRAMAN SUBMITTED THAT OWN2ERSHIP OF PROPERTY IS A BUNDLE OF RIGHTS . FSI /TDR ARE BENEFIT ITA NO. 4843/M/09 4 ARUISING FROM LAND CONSEQUENTLY MUST BE HELD AS IMM OVABLE PROPERTY AND RELIED ON THE DECISION OF CHHEDA HOUSING DEVEL OPMENT CORPN. VS BIBIJAN SHAIKH FARID & OTHERS 2007 (3) MH. L.J WHER EIN THE MUMBAI HIGH COURT HAS HELD AS UNDER: THE AGREEMENT UNDER CONSIDERATION IS AN AGREEMENT FOR ENTRUSTING THE WORK OF DEVELOPMENT TO A PARTY WITH ADDED RIGHTS TO SELL THE CONSTRUCTED PORTION TO FLAT PURCHASERS, WH O WOULD BE FORMING A CO-OPERATIVE HSG. SOC. TO WHICH SOCIETY, THE OWNE R OF THE LAND, IS OBLIGED TO CONVEY THE CONSTRUCTED PORTION AS ALSO T HE LAND BENEATH CONSTRUCTION ON ACCOUNT OF STATUTORY REQUIREMENTS. THE COURT OBSERVED THAT AN IMMOVABLE PROPERTY UNDER THE GENERAL CLAUSES ACT, 1897 U/S. 3(26) HAS BEEN DEFIN ED AS UNDER: IMMOVABLE PROPERTY SHALL INCLUDE LAND, BENEFITS T O ARISE OUT OF LAND, AND THINGS ATTACHED TO THE EARTH , OR PERMANENTLY FASTENED TO ANYTHING ATTACHED TO THE EARTH. IF, ANY BENEFIT ARISES OUT OF THE LAND, TH EN IT IS IMMOVABLE PROPERTY. CONSIDERING SEC. 10 OF THE SPE CIFIC RELIEF ACT, SUCH A BENEFIT CAN BE SPECIFICALLY ENFO RCED UNLESS THE RESPONDENTS ESTABLISH THAT COMPENSATION IN MONEY WOULD BE AN ADEQUATE RELIEF. CAN FSI/TDR BE SAID TO BE A BENEFIT ARISING FROM TH E LAND. IN SIKANDAR & ORS. VS BAHADUR & ORS. XXVII INDIAN LAW REPORTER, 462, A DIVISION BENCH OF THE ALLAHABAD HIGH COURT H ELD THAT RIGHT TO COLLECT MARKET DUES UPON A GIVEN PIECE OF LAND IS A BENEFIT ARISING OUT OF LAND WITHIN THE MEANING OF SEC. 3 OF THE IND IAN REGISTRATION ACT, 1877. A LEASE, THEREFORE OF SUCH RIGHT FOR A PERIOD OF MORE THAN ONE YEAR MUST BE MADE BY REGISTERED INSTRUMENT. A DIVISION BENCH OF THE OUDH HIGH COURT IN RAM JAIWAN & ANR. VS HAN UMAN PRASAD & ORS. AIR 1940 OUDH 409 ALSO HELD THAT BAZAAR DUES , CONSTITUTE A BENEFIT ARISING OUT OF THE LAND AND THEREFORE A LEA SE OF BAZAAR DUES IS A LEASE OF IMMOVABLE PROPERTY. A SIMILAR VIEW H AS BEEN TAKEN BY ANOTHER DIVISION BENCH OF THE ALLAHABAD COURT IN SM T. DROPADI DEVI VS RAM DAS AND ORS., AIR 1974 ALLAHABAD 473 ON A CO NSIDERATION OF SEC. 3(26) OF GENERAL CLAUSES ACT. FROM THESE J UDGEMENTS WHAT APPEARS IS THAT A BENEFIT ARISING FROM THE LAND IS IMMOVABLE PROPERTY. 8. THEREFORE THE COURT HELD THAT FSI/TDR BEING A BE NEFIT ARISING FROM THE LAND, CONSEQUENTLY MUST BE HELD TO BE IMMOVABLE PROPERTY. HENCE ITA NO. 4843/M/09 5 DEVELOPMENT RIGHTS IS A CAPITAL ASSET AND TRANSFER OF SUCH RIGHTS LEADS TO CAPITAL GAINS. 9. THE LD. COUNSEL PLACED BEFORE US THE DECISIONS O F THE VARIOUS BENCHES OF TRIBUNAL WHEREIN IT HAS BEEN HELD THAT T HERE IS NO COST OF ACQUISITION FOR THE FSI TRANSFER TO THE DEVELOPER A ND HENCE THERE IS NO TAXABLE CAPITAL GAINS. 10. WE HAVE HEARD BOTH THE PARTIES. IN THE DECIS ION OF THE ITAT MUMBAI BENCH IN THE CASE OF NEW SHAILAJA CO.OPERATI VE HSG, SOC. LTD. VS ITO IN ITA NO. 512/M/07, THE TRIBUNAL HAS OBSERV ED AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THE CONCEPT OF T.D.R (TRANSFER DEVELOPMENT RIGHT) AS NOTED BY THE AO ON PAGE 9 OF THE ORDER WAS INTRODUCED IN MUMBAI IN THE DEVELOPMENT CONTROL RULES, 1991 OF THE BOMBAY MUNICIPAL CORPORATION. THESE RI GHTS ARE GIVEN IN THE FORM OF A DEVELOPMENT RIGHT CERTIFICAT E (DRC) WHICH IS ISSUED BY THE MUNICIPAL CORPORATION. TDR MEANS THE DEVELOPMENT POTENTIAL, THE FSI OF A PLOT OF LAND IS SEPARATED FROM THE PLOT AND IS ALLOWED TO BE TRANSFERRED. TD R 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. ADVE RTING TO THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE BECAME ENTIT LED TO THE ADDITIONAL FSI OF AROUND 11,000 SQ.FT. DUE TO ITS L AND HOLDING. THE ASSESSEE TRANSFERRED THIS ENTITLEMENT FOR A CON SIDERATION OF RS.48.96 LAKHS TO M/S. D.K. BUILDERS. 11. AGAIN THE TRIBUNAL IN THAT CASE HELD AS UNDER: COMING BACK TO THE FACTS OF THE INSTANT CASE IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE HAD NOT INCURRED ANY COST OF ACQUISITION IN RESPECT OF THE RIGHT WHICH EMANAT ED FROM THE 1991 RULES MAKING THE ASSESSEE ELIGIBLE TO ADDITION AL FSI. THE LAND AND BUILDING EARLIER IN THE POSSESSION OF THE ASSESSEE CONTINUED TO REMAIN WITH IT AS SUCH EVEN A FTER THE TRANSFER OF THE RIGHT TO ADDITIONAL FSI FOR RS.48.9 6 LAKHS. THE LEARNED D.R. COULD NOT POINT OUT ANY PARTICULAR ASS ET, AS SPECIFIED IN SUB-SECTION (2) OF SECTION 55, WHICH W OULD INCLUDE ITA NO. 4843/M/09 6 THE RIGHT TO ADDITIONAL FSI. IN OUR CONSIDERED OPI NION, NO CAPITAL GAIN CAN BE 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 ABOVE REFERRED ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN JETHALAL D. MEHTA VS. DY. CIT WHICH WAS ALSO CITED BEFORE THE LD. CIT(A). NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE TO SHOW THAT THE SAID ORDER HAS BEEN MOD IFIED OR REVERSED BY THE HONBLE HIGH COURT. FURTHER, THE L D. D.R. COULD NOT POINT OUT ANY CONTRARY DECISIONS. RESPEC TFULLY FOLLOWING THE PRECEDENT, WE ACCEPT THIS GROUND OF A PPEAL. THE TRIBUNAL IN THE ABOVE MENTIONED CASE WAS DEALIN G WITH TRANSFER OF ADDITIONAL FSI. IN THE INSTANT CASE TH E FACTS ARE SIMILAR WHERE THE ASSESSEE HAS TRANSFERRED 50% OF T HE FSI THEY ARE ENTITLED TO IN FAVOUR OF THE DEVELOPER. TH E LAND CONTINUES TO BE WITH THE ASSESSEE. THUS, THERE IS NO TRANSFER OF LAND BY THE ASSESSEE IN FAVOUR OF THE DEVELOPERS . THE ASSESSEE HAS RECEIVED CONSIDERATION ONLY FOR GRANTI NG RIGHT TO UTILIZE 50% OF THE FSI AND CONSTRUCT BUILDING AND D EAL WITH THE SAME. THEREFORE, THE RATIO OF THE TRIBUNAL DECISIO N STATED SUPRA WILL BE EQUALLY APPLICABLE TO THE INSTANT CAS E ALSO. IN THAT CASE, IT HAS BEEN HELD THAT THERE IS NO COST O F ACQUISITION FOR THE FSI TRANSFER TO THE DEVELOPER AND HENCE THE RE IS NO TAXABLE CAPITAL GAINS. APPLYING THE RATIO OF THE T RIBUNAL, THERE WILL BE NO LIABILITY TO CAPITAL GAINS AS THERE IS N O COST OF ACQUISITION OF THE ASSET TRANSFERRED. IN THE CIRCUMSTANCES, THE ADDITION OF RS.76,64,008/ - MADE BY THE AO IS DELETED. THE ASSESSEES APPEAL IS ALLOWE D ON THIS ISSUE. 12. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF ITO VS LOTIA COURT CO.OP. HSG. SOC. LTD. (2008) 12 DTR 396, JETHALAL D . MEHTA VS DY. CIT 2 SOT 422 (MUM) AND MAHESHWAR PRAKASH 2 C.H.S. VS ITO 20 DTR 269 (MUM). THEREFORE FOLLOWING THE AFORESAID DECISIONS , WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS RIGHT IN ASSESSING THE TRA NSFER OF FSI/TDR UNDER THE HEAD CAPITAL GAIN INSTEAD OF ASSESSING THE S AME UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, AS THERE IS NO COST OF ACQUISITION OF THE ASSET TRANSFERRED, THERE WILL BE NO LIABILIT Y TO CAPITAL GAINS. ITA NO. 4843/M/09 7 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 14 TH MAY, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4843/M/09 8 DATE INITIALS 1 DRAFT DICTATED ON: 6.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 7.5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______