PRADYOT B. BORKAR,MUMBAI vs. ACIT 19(3), MUMBAI

The dispute in the present appeal is confined to the addition of ` 53,80,500, under the head “Income From Other Sources”.

Brief facts are, the assessee is an individual. For the assessment year under dispute, the assessee filed his return of income on 5th April 2012, declaring total income of ` 32,30,000. During the assessment proceedings, the Assessing Officer noticing that the assessee has offered long term capital gain of ` 31,12,638, towards sale of residential flats at C–20, 179, MIG, Bandra, Mumbai, and has simultaneously claimed deduction under section 54 of the Income Tax Act, 1961 (for short "the Act"), called upon the assessee to furnish all relevant details relating to the accrual of capital gain. After considering the details furnished by the assessee, the Assessing Officer found that the assessee was owning a flat in the housing society which was given for development under a scheme of re–development. As per the terms of the development agreement between the housing society and members of the society, in addition to receiving a new residential flat after re–development each member was also entitled to receive an amount of ` 53,80,500, comprising of the following:–

The Assessing Officer, after examining the nature of payment received by the assessee, was of the view that none of the aforesaid amounts was paid to the assessee for acquisition of the old flat, but was paid towards compensation. Therefore, the amount received is not any way related to transfer of capital asset giving rise to capita gain. Thus, ultimately, he concluded that the amount of ` 53,30,500, has to be assessed under the head “Income From Other Sources”. The assessee challenged the aforesaid addition before the first appellate authority.

Before learned Commissioner (Appeals), the assessee without prejudice to his submission that the amount of ` 53,50,500, is assessable under the head “Long Term Capital Gain”, submitted that the amount of ` 53,50,500, is in the nature of capital receipt, hence, not liable to tax. Therefore, has to be reduced from the cost of the new flat. Learned Commissioner (Appeals), however, did not find merit in any of the submissions made by the assessee and accordingly confirmed the addition made by the Assessing Officer.

The learned Authorised Representative submitted, the amount of ` 53,50,500, was received by the assessee on account of handing over the old flat for the purpose of re–development and in lieu, each of the members of the housing society is to receive a new flat and an amount

The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, the development agreement was between the housing society and the developer and as per the terms of the development agreement, any capital gain accruing as a result of re– development is to be assessed at the hands of the housing society. She submitted, the compensation received by the members of housing society is in no way connected to the accrual of capital gain and is a 5 Pradyot B. Borkar completely distinct and separate payment made to the members due to certain other factors. Therefore, it cannot be considered as capital gain. Further, she submitted, the claim of the assessee that it is in the nature of capital receipt is also not acceptable in view of the reasoning of learned Commissioner (Appeals).

We have considered rival submissions in the light of the decisions relied upon and perused the material on record. Undisputedly, in the return of income the assessee has offered the amount of ` 53,50,500, as income from long term capital gain. Whereas, the Assessing Officer has held that the aforesaid amount received by the assessee is in the nature of compensation received due to some specific factors and not related to transfer of capital asset. He has observed that as per the terms of the development agreement, any capital gain arising due to re–development would accrue to the housing society. Therefore, the compensation received of ` 53,50,500, cannot be treated as capital gain. From the facts on record, it is clear that the amount of `53,50,500 was received by the assessee only because of handing over the old flat for the purpose of re–development. Therefore, the amount of ` 53,50,500, received by the assessee is integrally connected with the transfer of his old flat to the developer for re– development in lieu of which he received the amount of ` 53,50,500, and a new residential flat. Therefore, the amount of ` 53,50,500, has to be treated as income under the head “Capital Gain”. The decision of 6 Pradyot B. Borkar the Co–ordinate Bench in Rajnikant D. Shroff v/s ACIT, ITA no.4424/Mum./ 2014, dated 23rd September 2016, supports this view. In view of the aforesaid, we hold that the amount of ` 53,50,500, has to be assessed under the head “Capital Gain”. It is relevant to observe, in course of hearing the learned Authorised Representative has submitted before us that in case assessee’s claim that the amount of ` 53,50,500 is assessable under the head “Capital Gain”, is accepted, the alternative claim that the amount is in the nature of capital receipt, hence, not taxable would not be contested. Considering the aforesaid submission of the learned Authorised Representative, we do not find the necessity to deliberate on the nature of receipt.