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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri G S Pannu, AM & Shri Sanjay Garg, JM
Per Sanjay Garg, Judicial Member:
The present appeal filed by the assessee is directed against the order of the CIT(A) -30, Mumbai, dated 25.01.2011 pertaining to A.Y. 2002-03.
The assessee has raised as many as eight grounds of appeal, however, the sole issue relates to the taxing of sum of Rs.77,15,157/- as Long term capital gains u/s. 45 of the I.T. Act on transfer of FSI/TDR.
ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd
The brief facts of the case are that the assessee is a housing society.
A survey action u/s. 133A of the Act was conducted on 31.03.2001 in the case of the assessee society. It was found that the assessee had entered into an agreement with M/s. Divine Construction Co., the developer vide which the assessee had sold the development rights for a consideration of Rs.1.40 crores. On the basis of the said survey action, assessment was reopened u/s. 147 of the Act. During the course of reassessment proceedings, the AO noticed that the above stated amount of Rs.1.40 crores was received by the society on transfer of development rights/TDR.
However, the assessee society contended that the said amount was not taxable in the hands of the society since the same was distributed equally among the society members. The AO however, held that the transfer of FSI in the form of TDR was available to the society and not to the member.
The society had transferred the right in the property to the developer. The rights such as excess FSI/TDR were in the nature of intangible rights, which are embedded and firmly rooted to the rights in the ownership of the land.
Such rights basically flow and emanate out of the right of ownership of the land. Any gain arising from the sale/transfer of such TDR/ FSI would be fully attributable to the ownership right. Thus, the capital gain will be chargeable to the assessee on transfer of TDR/FSI being intangible property and would fall within definition of section 2(14) of the Act. He further
ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd observed that the rights created by the Development Control Regulation of 1991 were attached to the land owned by the assessee society which was acquired for value given or money paid. The ownership of the plot entitles the assessee to consume the permissible FSI. The TDR rules extend the permissible FSI limit of the assessee’s plot of land. The effect of this extension was to spread the original cost of land over increased FSI provided by the Development Control Regulation of 1991. He therefore held that the principle, which is applicable to bonus shares will be applicable in the case of additional FSI, if any, granted to the society under the amended rules. He therefore estimated the cost of acquisition of the TDR on the basis that the same was embedded in the ownership right of the property and took the value as on 01.04.1191 and computed capital gain over it. Being aggrieved, the assessee preferred appeal before the CIT(A), but without any success. Thus, the assessee is in appeal before us.
We have heard the rival contentions. The TDR was transferred by the society to the builder and the amount in lieu thereof was received by the assessee society which was further distributed among the members of the society. Hence, it is the assessee society which transferred the TDR for consideration hence, the entire amount has to be considered as receipt in the hands of the assessee’s society.
ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd
Now coming to the issue whether the capital gains received by the assessee in lieu of transfer of TDR can be assessed under section 45 of the Act or not, the base decision in this respect is in the case of CIT v. B.C.
Srinivasa Shetty (1981) 128 ITR 294; (1981) 2 SCC 460 wherein the Hon’ble Supreme Court has held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as "never intended by section 45 to be the subject of the charge". The Hon’ble Supreme Court in the case of ‘PNB Finance ltd. vs. CIT (2008) 307 ITR 75’ has reiterated the above proposition of law. In the case of CIT v. B.C. Srinivasa Shetty (supra) the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Thereafter Section 55 (2) was amended to provide that the cost of acquisition of, inter alia, a tenancy right, good will etc. would be taken as nil. However, the rights obtained by way of additional TDR have not been included in the provision neither in the charging section 45 nor in the section 48 which provides mode of computation. Though the Parliament has made an amendment that in certain type of assets like goodwill, tenancy rights etc.,
ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd the cost of acquisition would be taken as actual cost incurred and if no cost incurred, the same be taken at nil, however the said deeming section is applicable to the assets which have been specifically brought within the purview of the said provision. The assets or the rights which do not find mention in the relevant provision, cannot be brought within the ambit of charging section, in the light of the decision of the Hon’ble Supreme Court.
So far as the question that the cost of additional TDR is determinable or not, the issue is now squarely covered by the decision of the Hon’ble Bombay High Court in the case of “CIT vs. Shambaji Nagar Co-operative Housing Society Ltd.” 370 ITR 325, wherein Hon’ble Bombay High Court while relying upon the proposition of law laid down by the Hon’ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (supra) has held that in the case of the society ,the receipt in lieu of transfer of TDR rights cannot be subjected to capital Gains Tax.
The Hon’ble High Court agreed with the view of the Tribunal that the assessee has not incurred any cost of acquisition in respect of right which emanated from the relevant rules/ Development Control Regulation making the assessee eligible to additional FSI. Even after the transfer of the right or the additional FSI, the position did not undergo any change. Hence, no ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd cost of acquisition was incurred by the assessee in respect of the TDR or even the same was not determinable.
We further find that identical issue has been decided by the co- ordinate bench of this Tribunal in the case of “Land Bridge Co-operative Housing Society Ltd” vide order dated September 14, 2012 reported as (2013) 21 ITR Trib. 467 (Mum.) wherein it has been held that though the transferrable development right amounts to transfer of capital asset by the society, however, the same could not be subjected to tax under the head ‘Capital Gains’ for the reasons that there was no cost of acquisition in acquiring the right which had been transferred and, therefore, the computational mode given in section 48 thus fails. The matter was carried by way of appeal by the Revenue to the Hon’ble Bombay High Court. The Hon’ble jurisdictional High Court vide order dated 11.03.2015 passed in styled as “CIT vs. Land Bridge Co-operative Housing Society Ltd.” while relying upon the another decision of the Hon’ble High Court in the case of “CIT vs. Shambaji Nagar Co-operative Housing Society Ltd.” 370 ITR 325 upheld the order of the Tribunal. Hence, the same analogy will also Respectfully following the decision of the Hon’ble Bombay High Court, it is held that the TDR receipts in the hands of the assessee are not taxable.
ITA 2494/Mum/11 Akhand Aabhar Co op Hsg. Soc. Ltd
In the result, the appeal is allowed.
Order pronounced in the open court on 20th October, 2015.