ITO 19(2)(3), MUMBAI V. KISHOR H MATANI, MUMBAI

ITA 6146/MUM/2012

• Counselvise Citation: 614619914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-06-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 08-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R WINAWE
• Assessee Lawyers: DEEPAK TRALSHAWALA
• Keywords: Cost of acquisition; Reassessment proceedings
• Section: 148; 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI .. , ; BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M ./ I.T.A. NO. 6146/ MUM/2012 ( / ASSESSMENT YEAR : 2003-04 INCOME TAX OFFICER 19(2)(3), ROOM NO. 305, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -12. / VS. MR. KISHORE H. MATANI, 28, SUSHILA BAUG, 53-A, S.V. ROAD, SANTACUZ (W), MUMBAI 400 054. ./ PAN : AADPM 4851C ( # / APPELLANT ) .. ( $%# / RESPONDENT ) A PPELLANT BY SHRI A.R. WINAWE R E SPONDENT BY : SHRI DEEPAK TRALSHAWALA ) * / DATE OF HEARING : 16-6-2014 ) * / DATE OF PRONOUNCEMENT : 18-6-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - 35, MUMBAI DATED 25-07-2012 WHEREBY HE DELETED THE ADDITION OF RS. 22,49,203/- MADE BY THE A.O. ON ACCOUNT OF LONG TER M CAPITAL GAIN ARISING FROM SALE OF ADDITIONAL FSI/TDR. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDU AL WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ORIGINALLY ON 8-9-2003 DECLARING TOTAL INCOME OF RS. 9,57,170/-. THE SAID RETURN WAS DULY PROCESSED BY THE A.O. U/S 143(1) OF THE INCOME TAX ACT, 1961. THEREAFTER, DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2004-05, IT WAS NOT ICED BY THE A.O. THAT THE ITA 6146/M/12 2 ASSESSEE AS PER THE AGREEMENT ENTERED INTO ON 19-9- 2002 HAD RECEIVED AN AMOUNT OF RS. 22,49,203/- AS CONSIDERATION FOR SALE OF ADDITIONAL FSI/TDR IN THE SOCIETY NAMELY KAMALESHWAR CO-OP. HSG. SOCIETY FROM M/S ORBIT ENTERPRISES, A DEVELOPER. THE CAPITAL GAIN ARISING FROM THIS TRANSACTION WAS OFFERED BY THE ASSESSEE TO TAX IN HIS RETURN OF INC OME FILED FOR A.Y. 2004-05 AND THE SAME ENTIRELY CLAIMED TO BE EXEMPT U/S 54EC OF THE ACT AS A RESULT OF INVESTMENT MADE IN NABARD TAX FREE BONDS. ACCORDING TO THE A.O., THE SAID CAPITAL GAIN ARISING TO THE ASSESSEE ON SALE OF FSI WAS TAXABLE IN THE YEAR IN WHICH THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH THE DEVELOPER ON 19-9- 2002 AND THE SAME THEREFORE WAS CHARGEABLE TO TAX I N A.Y. 2003-04. HE ACCORDINGLY REOPENED THE ASSESSMENT FOR A.Y. 2003-0 4 AFTER RECORDING THE REASONS AND ISSUED A NOTICE TO THE ASSESSEE U/S 148 OF THE ACT. IN REPLY, A LETTER DATED 6-12-2006 WAS FILED BY THE ASSESSEE ST ATING THEREIN THAT THE RETURN OF INCOME ORIGINALLY FILED BY HIM ON 8-9-200 3 MAY BE TREATED AS THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 14 8 OF THE ACT. 3. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, I T WAS SUBMITTED BY THE ASSESSEE THAT THE AGREEMENT ENTERED INTO WITH M /S ORBIT ENTERPRISES FOR TRANSFER OF ADDITIONAL FSI/TDR WAS EFFECTIVE ONLY W HEN THE BUILDING PLANS WERE APPROVED AND COMMENCEMENT CERTIFICATE WAS ISSU ED BY THE BMC AND SINCE THE SAME HAD HAPPENED ONLY ON 5-5-2003 AND TH E POSSESSION OF THE PROPERTY WAS ALSO SIMULTANEOUSLY GIVEN BY THE DEVEL OPER, THE CAPITAL GAIN FROM TRANSACTION OF ADDITIONAL FSI/TDR HAD ARISEN O NLY IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. THIS SUBMISSION OF THE AS SESSEE WAS NOT ACCEPTABLE BY THE A.O. AS, ACCORDING TO HIM, THE ASSESSEE HAVI NG ENTERED INTO THE AGREEMENT WITH THE DEVELOPER ON 19-9-2002 AND ALSO HAVING RECEIVED A PART AMOUNT OF CONSIDERATION ON 27-9-2002 AND 12-3-2003, BOTH THE PARTIES HAD PERFORMED THEIR PART OF AGREEMENT IN THE PREVIOUS Y EAR RELEVANT TO A.Y. 2003- 04 AND THE CAPITAL GAIN ACCORDINGLY WAS CHARGEABLE TO TAX IN A.Y. 2003-04. THE ADDITION OF RS. 22,49,203/- ON ACCOUNT OF CAPIT AL GAIN THEREFORE WAS ITA 6146/M/12 3 MADE BY THE A.O. IN THE ASSESSMENT COMPLETED FOR A. Y. 2003-04 U/S 143(3) R.W.S. 147 OF THE ACT VIDE AN ORDER DATED 3-12-2007 . 4. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING THE ADDITION MADE ON ACCOUNT OF CAPITAL GAIN ARISING FR OM SALE OF ADDITIONAL FSI/TDR AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF CAPITAL GAIN FOR THE FOLLOWING REASONS GIVEN IN PARA 5 OF HIS IMPUGNED ORDER:- 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRES ENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLANT R ECEIVED RS. 22, 49,203/- FROM M/S ORBIT ENTERPRISES TOWARDS SALE OF TDR IN RESPECT OF HIS RIGHTS IN TAGORE ROAD KAMLESHWAR CO-OPERATIVE H OUSING SOCIETY LTD. THE A.O. TREATED THE SALE OF TDR AS SALE OF TE NANCY RIGHT. THERE IS DISTINCTION BETWEEN SALE OF TDR AND TENANCY RIGHTS AND AS PER SECTION 55(2) , IT IS SPECIFICALLY PROVIDED THAT THE TENANC Y RIGHT SHALL HAVE NO COST OF ACQUISITION BUT THERE IS NO SUCH PROVISION REGARDING TDR IN SECTION 55(2) . FURTHER, AS CONTENDED BY THE REPRES ENTATIVE, THE HONBLE TRIBUNAL IN ITA NO. 1909/MUM/2008 DT. 30.4.2010 FOR AY. 2002-03 IN THE CASE OF SMT. JAMNABAL ANANDJI MATANI, LEGAL HEI R SHRI BHUPENDRA MATANI, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE SALE CONSIDERATION RECEIVED TOWARDS SALE OF TDR IS NOT T AXABLE. FOR THIS PURPOSE, THE HONBLE TRIBUNAL RELIED ON THE DECISIO N OF THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF JETHALAL D. MEHAT VS . DY. CIT (2 S0T 422). FOLLOWING THE DECISION OF THE HONBLE TRIBUNA L, I DIRECT THE A.O.TO DELETE THE ADDITION OF RS, 22, 49,203/- UNDER THE H EAD LONG TERM CAPITAL GAINS. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN THIS APPEAL O F THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION R ENDERED BY THE TRIBUNAL IN THE CASE OF LATE SMT. JAMNABAI ANANDJI MATANI, LEGA L HEIR OF SHRI BHUPENDRA MATANI VS. ITO VIDE ITS ORDER DATED 30-4-2010 PASSE D IN ITA NO. ITA 6146/M/12 4 1909/MUM/2008. A COPY OF THE SAID ORDER IS ALSO PL ACED ON RECORD AND THE PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE INVO LVED IN THE SAID CASE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSES SEE VIDE PARA 7 TO 10 OF ITS ORDER WHICH ARE REPRODUCED HEREUNDER:- 7. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE OF TAXABILITY OF SUCH A RECEIPT IS COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF A CO-ORDINATE BENCH IN THE CASE OF JETHALAL D. MEHTA VS DCIT, 2 SOT 422, W HEREIN THE TRIBUNAL, SPEAKING THROUGH ONE OF US (I.E., THE ACC OUNTANT MEMBER), OBSERVED AS FOLLOWS: 5. WE MAY MENTION THAT AS FAR CADELL WVG. MILL CO. (P) LTD.S CASE (SUPRA) IS CONCERNED, THE SPECIAL BENCH DECISI ON OF THE TRIBUNAL HAS SINCE BEEN REVERSED BY THE HONBLE BOM BAY HIGH COURT IN THE JUDGMENT REPORTED AS CADELL WVG. MILL CO. (P) LTD. VS. CIT (2001) 166 CTR (BOM) 7 (2001) 249 ITR 265 ( BOM.). SUFFICE TO SAY THAT FOR THIS REASON ALONE REVENUES , REJECTION OF ASSESSCES CLAIM, BY RELYING UPON CADELL WVG. MILL CO. (P) LTD.S CASE (SUPRA) IS NO LONGER SUSTAINABLE IN LAW. WE NE ED NOT GO FURTHER INTO THIS ASPECT OF THE, MATTER. THE ONLY O THER REASON OF REJECTING THE CLAIM THAT THE ASSIGNMENT OF ADDITION AL FSI IS THAT, ACCORDING TO THE AUTHORITIES BELOW, THIS RIGHT HAS COST OF ACQUISITION WHICH CONSISTS OF COST OF PURCHASE OF P LOT, COSTS OF GETTING THE DESIGNS APPROVED AND COSTS OF CONSTRUCT ING THE BUILDING. IN THIS CONTEXT, HOWEVER, WHAT IS NECESSA RY TO APPRECIATE IS THAT THE RIGHTS ASSIGNED TO THE DEVEL OPER ARE THE RIGHTS TO RECEIVE AND APPLY THE TRANSFERABLE DEVELO PMENT RIGHTS, AND THAT THESE RIGHTS AROSE TO THE ASSESSEE BY THE VIRTUE OF INTRODUCTION OF DCR. UNTIL THE POINT OF TIME THES E DEVELOPMENT REGULATION CAME INTO EXISTENCE, THE ASSESSEE DID NO T HAVE RIGHT TO RECEIVE AND APPLY THE TRANSFERABLE DEVELOPMENT RIGH TS. IT IS THESE RIGHTS ON THE ASSIGNMENT OF WHICH THE ASSESSEE HAS RECEIVED THE IMPUGNED AMOUNT. THEREFORE, THE EXPENDITURE INCURRE D ON PURCHASE OF PLOT AND CONSTRUCTION THEREON CANNOT BE SAID TO BE THE COSTS FOR ACQUISITION OF THESE RIGHTS. THE RIGH TS ARE ACQUIRED BY THE VIRTUE OF BEING OWNER OF THE PLOT IN THE SPE CIFIED AREA BUT THAT DOES NOT MEAN THAT THE COST INCURRED ON THE PL OT IS THE COST OF ACQUIRING THESE RIGHTS. THE EFFECT OF THE RIGHTS BEING RELATABLE TO THE LEASEHOLD RIGHTS IN THE PLOT COULD AT BEST B E THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ASSIGNMENT OF RI GHTS TO RECEIVE THE TRANSFERABLE DEVELOPMENT RIGHTS ENDS UP REDUCING EFFECTIVE COST OF ACQUISITION OF THE LAND AND BUILD ING IN THE SAID PLOT. THEREFORE, AS AND WHEN THE ASSESSEE TRANSFER S THE SAID PLOT, BUILDING OR ANY PORTION THEREOF AND WHILE DET ERMINING CAPITAL GAINS ARISING ON SUCH SALE, THE COST OF ACQ UISITION MAY STAND REDUCED BY THE AMOUNT RECEIVED BY THE ASSESSE E ON ITA 6146/M/12 5 ASSIGNMENT OF RIGHTS TO RECEIVE THE TDRS. THE CIT(A )S OBSERVATIONS THAT THIS RIGHT CANNOT BE SAID TO BE W ITHOUT ANY COST OF ACQUISITION BECAUSE THE TDRS HAVE BEEN RECE IVED ON SURRENDER OF RESERVED PLOT TO THE GOVERNMENT IS EX FACIE INCORRECT INASMUCH AS WHAT WE ARE REALLY CONCERNED WITH IS TH E RIGHT TO RECEIVE THE TDR ON THE PLOT OWNED BY THE ASSESSEE, AND NOT WITH THE RIGHT TO RECEIVE THE TDR FROM THE GOVERNMENT. T HE PERSON GETTING TDRS FROM THE GOVERNMENT HAS TO SURRENDER T HE RESERVED PLOT BUT THE PERSON ON WHOSE PLOT SUCH TDRS CAN BE USED, AS IS THE CASE WE ARE IN SEISIN OF, DOES NOT DO ANYTHING MORE THAN OWNING THE RECEIVING PLOT THE COSTS INCURRED BY A THIRD PARTY FOR ACQUIRING THE TDR HAS NOTHING TO DO WITH THE RIGHT TO AVAILING THE SAID TDR ON ASSESSEES PLOT. SIMILARLY, THE COS TS OF PLOT AND COSTS OF CONSTRUCTION ARE ALSO NOT THE COST OF ACQU ISITION OF THESE RIGHTS. WHAT THE ASSESSEE HAS TRANSFERRED IS NOT TH E PLOT OR THE BUILDING, BUT A RIGHT PARTING WITH WHICH DOES NOT R ESULT IN PARTING WITH LAND OR BUILDING. THE COSTS OF OBTAINI NG BMC APPROVAL FOR THE BUILDING PLAN CAN ALSO NOT BE SAID TO BE THE COSTS OF ACQUISITION OF THESE RIGHTS AS THESE RIGHT S DO NOT ARISE BY THE VIRTUE OF GETTING THESE APPROVALS BUT BY THE VI RTUE OF A LEGAL RIGHT IN DEPENDENT THEREOF. THE LAW IS TRITE, AND T HERE IS NO DISPUTE ON THE SAID POSITION, THAT WHEN AN ASSET HA S NO COST OF ACQUISITION, THE GAINS ON SALE OR TRANSFER OF SAME CANNOT BE BROUGHT TO TAX. THE LAW LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. B.C SRINIVASA SETTY (SUPRA) CLEARLY HOLDS SO. FOR ALL THESE REASONS, WE ARE OF THE CONSIDERED VIEW THAT THE RECEIPTS ON SALE OF ASSIGNMENT OF RIGHTS TO RECEIVE TDRS ARE NOT LIABLE TO TAX. THE AUTHORITIES BELOW ERRED IN LAW A ND ON FACTS IN HOLDING TO THE CONTRARY. 8. WE HAVE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. 9. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E AUTHORITIES BELOW INDEED ERRED IN LAW IS TAXING THE AMOUNT OF R S.12,62,619/- AS INCOME OF THE ASSESSMENT YEAR BEFORE US. WE LEAVE I T THAT. 10. FOR THE REASONS SET OUT ABOVE, WE DIRECT THE AS SESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS OF RS. 12,62,619/-. T HE ASSESSEE GETS THE RELIEF ACCORDINGLY. 6. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WEL L AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF LATE SM T. JAMNABAI ANANDJI MATANI, LEGAL HEIR OF SHRI BHUPENDRA MATANI (SUPRA) , WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE CO-ORDINATE BENCH OF T HIS TRIBUNAL IN THE SAID CASE AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A ) DELETING THE ADDITION OF ITA 6146/M/12 6 RS. 22,49,203/- MADE BY THE A.O. ON ACCOUNT OF LONG TERM CAPITAL GAIN ARISING FROM THE SALE OF ADDITIONAL FSI/TDR. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2014 . ) 0 1 18-6-2014 ) SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 186662014 [ \ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. < () / THE CIT(A)35 MUMBAI. 4. < / CIT 19, MUMBAI 5. $@ , * @ , / DR, ITAT, MUMBAI A BENCH 6. / GUARD FILE. / BY ORDER, % $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI