Income Tax Appellate Tribunal - Mumbai
Land Breez Co Op Hsg Society Ltd , Mumbai vs Assessee on 25 March, 2011
आयकर अपील य अ धकरण,
धकरण, मंुबई यायपीठ 'डी' मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, MUMBAI
ी बी.
बी रामकोट
रामकोट य,
य लेखा सद य,
य एवं ी अ मत शु ला, या यक सद य के सम
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं. / ITA no. 4130/Mum./2011
( नधारण वष / Assessment Year : 2007-08)
Land Breez Co. Operative Housing
Society Ltd., Nargis Dut Road ....................... अपीलाथ /
52, Pali Hill Road, Bandra (West) Appellant
Mumbai 400 050
बनाम v/s
Income Tax Officer
Ward-19(3)(2) ................... यथ /
Piramal Chambers, Parel Respondent
Mumbai 400 012
थायी लेखा सं./ Permanent Account Number - AAAAL1781C
नधा रती क ओर से / Assessee by : Mr. M.V. Subramanian
राज व क ओर से / Revenue by : Mr. Pragati Kumar
सनवाई
ु क तार ख / आदे श घोषणा क तार ख /
Date of Hearing - 19.07.2012 Date of Order - 14.09.2012
आदे श / ORDER
अ मत शु ला, या यक सद य के ारा /
PER AMIT SHUKLA, J.M.
The present appeal preferred by the assessee, is directed against impugned order dated 25th March 2011, passed by the learned Commissioner (Appeals)-XXX, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 2007-08. Following grounds of appeal have been raised:-
Land Breez Co. Operative Housing Society Ltd.2
1. On the facts and in the circumstances and in law, the assessment order passed u/s 143(3) is invalid and bad in law.
2. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in dismissing the appeal.
3. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in dismissing the appeal and that too without giving full and proper opportunity of being heard in the matter.
On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in dismissing the appeal and that too without appreciating the facts and circumstances of the case fully and properly.
4. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in confirming the action of the A.O. in determining and assessing an amount of Rs.1O,70,46,274/- as capital gains income.
5. On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in holding that capital gains of Rs.1 1 .66 crores has accrued to the appellant society and is liable to be taxed as capital gains of the appellant society.
6. Without prejudice to ground number 5 and 6, and on the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in confirming the action of the A.O. in adopting cost of acquisition at Rs.71 ,11,852/- for computing capital gains income.
7. On the facts and in the circumstances of the case and in law, the learned AO erred in charging interest of Rs.68,37,990/- u/s 234B of the l.T. Act, 1961."
2. Before us, at the outset, the learned Counsel for the assessee did not press grounds no.1, 2, 3 and 4, to which, the learned Departmental Representative has not made any objection. Consequently, these grounds are dismissed as "not pressed".
3. The main crux of the issue involved in this appeal are arising out of grounds no.5 and 6, which relates to taxing of capital gain for a sum of ` 10,70,46,274, on the total receipt of ` 11,66,00,000, arising out of Transfer of Development Rights (for short "TDRs") in respect of land owned by the assessee.
4. Facts relating to the issue as to how the assessee has received the money from the transfer of TDRs have been elaborately discussed in the Land Breez Co. Operative Housing Society Ltd.
3assessment order as well as the learned Commissioner (Appeals)'s order which, for the sake of ready reference, are also incorporated hereunder:-
1. Late Smt. Dma Dady Baxter was owner of land admeasuring about 5715 sq. mt at Pall Hill Bandra(Survey No. C/1388 to C/1393 etc.) in addition to the bunglow (admeasuring 2,352, sq. mt.) and two other ground floor structures.
ii) On a plot of land admeasuring 3367 sq. mt. out of larger plot of 5715 sq. mt. as mentioned above, a building "Land Breeze" (Stilt + 7 Floor) was constructed by M/s. Great Western Finance Corporation in the year 1978. In accordance with the terms of the development agreement dated 28.04.1978, the land owner Late Smt. Dma Dady Baxter received a consideration of Rs.23,66,000/- in this regard as her fixed share in the said project including the value of the land brought in by her in this project . The residents of this building formed society namely Land Breeze Co-Operative Housing Society Ltd. registered under the Maharashtra Co- Operative Societies Act, 1960.
iii) Subsequently, the part plot of land admeasuring 3367 sq. mtrs out of larger plot (admeasuring 5715 sq. mtrs) alongwith the Building namely "Land Breeze" constructed on it. was conveyed by late Smt. Dina Dady Baxter vide conveyance deed dated 26th February, 1979 in favour of the Land Breeze Co- Operative Housing Society Ltd.
iv) Thus, on 26th February; 1979 Conveyance deed executed by late Smt. Dina Dady Baxter in favour Of the Land Breeze Society vesting ownership of land admeasuring 3367 sq. mtrs. along with the building with M/s. Land Beeze Co-Op. Hsg Society Ltd.
v). On 17.11.2004 daughter of late Shri Dina Dady, Ms.Sillo Dady Baxter, •executrix of the last will and testament of Late Smt. Dma Land Breez Co. Operative Housing Society Ltd.
4Daddy Baxter [who was owner of remaining plot admeasuring 2348 sq. mtrs. (5715-3367)] signed an agreement with the developer, promoters of (proposed) Ariel View Co-operative Housing Society (in her capacity as executor of the last will and testament of late Dina Dady Baxter)granting full and comprehensive development rights to them in respect of the balance Plot of land admeasuring 2348 sq. mtrs. Inter alia she granted rights to utilise entire FSI and TDR as may be available on the said sub plot admeasuring 2348 sq. mtrs. to the promoters Ariel View Co-Operative Housing Society(proposed).
vi) Apprehending that the developer and Ms. Baxter will seek to develop the property by inter-alia utilizing the FSI pertaining to the plot of land admeasuring 3367 sq. mtrs. owned by the Land Breeze Co-Op. Hsg. Soc. Ltd. also, the appellant society through its members filed a writ petition (No. 2653/2005) before the Bombay High Court against the part plot owner, the developers, Shri Sanjay Kanubhai Patel and Shri Vijay Mohanlal Parekh, Chief promoters, Ariel View Co-Operative Housing Society(proposed) etc.
vii) The said writ petition was admitted and an interim order passed on 18.04.2006 in favour of the society accepting the appellant's prayer that further construction by the developer on the remaining plot should be stopped.
viii) Being aggrieved SLP was filed against the order dated, 18.04.2006 by the land owner and developers; Meanwhile the appellant society also filed a suit in Bombay High Court on its original side, to further protect its interest.
ix) In the meanwhile, the developers who are promoters of new proposed 'society on balance portion of plot (admeasuring 2348 Land Breez Co. Operative Housing Society Ltd.
5sq. mtrs.) approach the appellant society and its advocates fo settlement. After negotiations a compromise in the form of consent terms was finalized and these terms of consent were filed before the Bombay High Court:
x) The Bombay High Court vide order dated 19.12.2006 dismissed the suit filed before them in terms of the consent on dated
19.12.2006 for want of prosecution. Thus, in the instant case, the appellant M/s. Land Breeze Co-operative Housing Soc. Ltd. made a negotiated settlement with the developers.
ix) Thus, as per the terms of consent, following payments were made to the society and the members of the developers:-
Sr. Payment made In A.Y. 2007- In A.Y. Total
no. to 08 (`) 2008-09 (`) Consideration (`)
1. Land Breeze 1,91,00,000 1,17,00,000 3,08,00,000
Co.op hsg. Soc.
2. Members of the 4,78,50,000 3,79,50,000 8,58,00,000
Society
5. In the return of income filed for the assessment year 2007-08, the assessee had shown receipt of ` 1.91 crores as "compensation received" on account of grant of permission and towards settlement of disputes between the builders, the society and its members. On verification of the details, the Assessing Officer noted that the assessee society was entitled to utilise TDRs in respect of land admeasuring 3,367 sq.mtrs. owned by them in the ratio of 1:1 in accordance with the provisions of Development Control Rights, 1991. The assessee has transferred this right to the developers M/s. Arial View Co- operative Housing Society, vide terms of consent dated 9th December 2006. As per these terms, the assessee received a consideration of ` 3,08,00,000, towards granting this rights to the developers out of which ` 1,91,00,000, was received in assessment year 2007-08 and remaining amount of ` 1,17,00,000, was received in assessment year 2008-09. The members of the assessee-
Land Breez Co. Operative Housing Society Ltd.
6society also received a sum of ` 8,58,00,000, out of which ` 4,78,50,000, was received in A.Y. 2007-08 and ` 3,79,50,000 in assessment year 2008-09. In response to the show cause notice as to why the said amount was not offered for taxation, the assessee, in sum and substance, submitted that the said receipts is not taxable as it did not had any cost of acquisition, therefore, it was outside the purview of chargeability as per section 45 of the Act and provisions of section 55, cannot be invoked on such kind of transaction. In support of this, it was submitted that there are various judicial views in favour of the assessee that the amount received in transfer of TDRs is not taxable. With regard to the amount received by the members, it was reiterated that there is no ownership rights and no cost of acquisition.
6. These contentions of the assessee were not found acceptable by the Assessing Officer on the ground that the land is an asset and so are the rights attached to the land. The land was acquired by the assessee after paying a consideration and ownership of the land carries with it, bundle of rights attached to it and of which the right of development is an important one. Therefore, the benefit in the form of TDR arising out of the existing land is an immovable property, the transfer of which is liable to be taxed as income under the head "Capital Gains". The consideration received by the assessee and its members on transfer of its TDRs and entitlements to the developers is nothing but a transfer of a capital asset only. Even the members receiving the consideration are only on account of result of transfer of capital asset by the assessee society and, hence, needs to be taxed in the hands of the assessee only who is having the ownership right on the land. He further observed that in view of the provisions of section 48, it can be inferred that full value of consideration received or acquired as a result of transfer of capital asset has to be taxed in the assessment year for which such capital asset has been transferred which, in the present case, is assessment year 2007-08 and, therefore, the entire consideration is taxable in this year only.
7. The Assessing Officer required the assessee again to justify the claim of exemption of receipts towards transfer of TDRs and as to why the entire consideration received by the assessee and its members cannot be taxed in Land Breez Co. Operative Housing Society Ltd.
7the hands of the assessee in assessment year 2007-08. In response, the assessee made a very elaborated submission relying upon the decision of a co-ordinate bench of the Tribunal, Mumbai, in Jethalal D. Mehta v/s DCIT, [2005] 2 SOT 422 (Mum.), ITO v/s Lotia Court Co-operative Housing Society, [2009] 121 TTJ 62 (Mum.) 62, and the Hon'ble Supreme Court in CIT v/s B.C. Srinivasa Shetty, 128 ITR 294 (SC). Besides this, various other contentions based on the judicial pronouncements were made by the assessee which has been incorporated in the assessment order from Pages-5 to 8.
8. The Assessing Officer did not find the assessee's submission to be tenable on various counts. First of all, he analysed the term "Property" and held that it is a bundle of rights and it takes into its conspectuous all the rights associated with the land, which will essentially include the development rights which are identified by the Development Control Rules, 1991. He further proceeded to analyse the definition of "Capital Assets" as defined in sub- section (14) of section 2, that it is of embracing connotation and include every kind of property as generally understood except that which is exclusively excluded from the definition. The definition is wide enough to include all tangible or intangible assets. In support of the meaning and term of the word "Capital Assets", he relied upon catena of case laws which have been discussed from Pages-8 and 9 of the assessment order. He further held that in Shakti Insulated Wires Ltd. v/s JCIT, 87 ITD 56 (Mum.), the Tribunal held that the property takes into its conspectuous all the rights associated with the land, which will essentially include the development rights which were duly identified by Development Control Rights, 1991. In the said decision, the Tribunal has held that the income from transfer of TDR is linked with the ownership of the land and is is liable to be taxed under the head "Income From Capital Gains". He further referred to the decision of the Jurisdictional High Court in Chheda Housing Development Corporation v/s Bibi Jan Shekh Farid, [2007] 3 MHLJ 402 Bom., wherein it was held that transfer of development rights which enables the FSI to be used on any other plot of land, it is a benefit arising out of land and is an immovable property. He further held that the subsequent decisions of the Tribunal, as relied upon by the assessee cannot be taken into consideration as the decision Shakti Insulated Wires Land Breez Co. Operative Housing Society Ltd.
8(supra) was not taken into consideration and, therefore, are per-incuriam. With regard to the assessee's contention that there was no cost of acquisition, he relied upon the judgment of Hon'ble Supreme Court in A.R. Krishna Moorty, [1989] 176 ITR 417 (SC), that the land is a bundle of rights and when consideration is paid for land, a part of it is allocable to each of the rights which goes along with the ownership of the land. Based on these judgments, he held that there is a transfer of capital asset held by the assessee which is chargeable to tax.
9. On the mode of computation of section 48, reliance placed on the various decision of the Tribunal by the assessee, the Assessing Officer held that the same are per incuriam because none of these decisions have taken into consideration the earlier decision of Shakti Insulated Wires Ltd. (supra). Lastly, he held that the Hon'ble Supreme Court in A.R. Krishna Moorty (supra), hgas distinguished and explained the ratio of B.C. Srinivasa Shetty (supra) and, therefore, there is no merit in the contentions of the assessee that no cost of acquisition can be ascribed. He further relied upon various judicial pronouncements relating to cost of acquisition after taking into consideration the judgment of B.C. Srinivasa Shetty (supra). These observations of the Assessing Officer are appearing at Pages-13 and 14 of the assessment order.
10. After discussing the issue in detail, the Assessing Officer reached to the following conclusion:-
"i. Undoubtedly the assessee, M/s. Land Breeze Co. Op. Hsg. Scty. Is the owner of land admeasuring 3367 sq.mtrs. at Pali Hill, Bandra (W), Mumbai, Even the Hon'ble Bombay High Court has confirmed the rights of society in respect of this land.
ii. Land is a bundle of rights. In the instant case, when land was purchased (i.e., ownership of land acquired by the society in consequence to the execution of conveyance deed in favour of it), all rights present and future embedded in it are also acquired.
iii. The society has transferred its TDR entitlement to the developers. Consideration received by the society and the members in this regard under consent terms which are nothing but agreement towards transfer of the TDR entitlement of the society.
Land Breez Co. Operative Housing Society Ltd.9
iv. Therefore, the benefit in the form of TDR arising out of the existing land is an immovable property, the transfer of which tantamount to transfer of a long term capital asset and hence liable to be taxed as income under the head "capital gain".
v. ` 8,58,00,000, received by the society and the members in this regard is chargeable to tax as income under the head "long term capital gain" in the hands of the assessee society in the A.Y. 2007-08."
11. Thereafter, he computed the income under "long term capital gains"
after observing and holding as under:-
"As stated in the preceding paragraphs the ownership of land was vested with the M/s. Land Breeze Co-op. Housing Society in consequence to execution of conveyance deed on 26.02.1979 by the land owner late Smt. Dina Daddy Baxter in favour of the society. As stated in the conveyance deed she received a consideration of ` 23,66,000, in this regard as her fixed share in the said project including the value of the land brought in by her in this project. On perusal of the copy of conveyance deed filed by representative of the assessee dated 26.2.1979, it is seen that a stamp duty of ` 3,50,900 and registration charges amounting TO ` 23,698 were also paid for registration of this deed. Thus, expenditure totaling to ` 27,40,598 was incurred towards acquisition of land. Taking into consideration, the facts of the case, the value of land owned by the society as on 1.4.1981, is arrived at ` 27,40,598. On perusal of copy of balance sheet of the society as on 31st March 2007, annexed along with the return of income, the value of land and building is shown at ` 95,34,000. Thus, it can be seen that value of the land as on 1.4.1981, determined at ` 27,40,598, is just and fair.
the ownership of the plot of land entitled the assessee to consume the permissible TDR, the original cost of land has to be consequentially spread over the increased TDR provided by the Development Control Regulation 1991. Since the assessee was entitled to the TDR in the ratio of 1:1 of the size of land holding, the value of TDR entitlement of the society as on 1.4.1981, is arrived at ` 13,70,299 (i.e., 50% of ` 27,40,598).
In view of the above, the income chargeable to tax under the head "long term capital gain" is computed as under:-
Income From Capital Gain (As ` 11,66,00,000
discussed above)
Less: Expenses incurred in ` 24,41,874 ` 11,41,58,126
relation to the above
Cost of acquisition as on
1.4.1981 = ` 13,70,299
Less: Indexed Cost of
acquisition for A.Y. 2007-08
Land Breez Co. Operative
Housing Society Ltd.
10
13,70,299 x 519 = ` 71,11,852
100
Income Taxable under the head
"long term capital gain" ` 10,70,46,274
12. Before the Commissioner (Appeals), the assessee made a very detail submission and relied upon various decisions passed by the Tribunal, Mumbai Benches, wherein, on similar issue and facts, it was held that computational provision of section 48, will not be applicable in case of transfer of TDRs, as there is no cost of acquisition. These submissions of the assessee have been incorporated from Pages-15-21 of the appellate order. The Commissioner (Appeals) rejected the said contentions of the assessee and on the reasoning given by the Assessing Officer, he gave following findings and the conclusion, which, for the sake of ready reference, are reproduced herein below:-
19. Applying the above ratio to the facts of the TDRs, unlike self generated goodwill, where it is not possible to determine the date of acquisition, in the case of TDRs the date of acquisition is clearly ascertainable, which is evidenced in the form of Development Right Certificate issued by the BMC. Further in B.C. Srinvas Shetty's case, it was held that the goodwill generated in newly commenced business cannot be described as an 'asset' within the terms of section 45 of the Act. In view of the above discussion it is evident that the ratio of B.C. Srinivas Shetty is also directly not applicable to the TDRs and hence is distinguishable. As regards the case of New Shailaja CHS Ltd. vs. ITO, it can be observed that the ITAT did not consider the earlier decision on this issue in the case of Shakti Insulated Wires cited supra. The judgment of the Apex Court in the case of B.C. Srinivasa Shett has also been explained by the Bombay High Court in the case of Trikamal Maneklal (HUF) 168 ITR 733 (Born). The Hon'ble High Court has very clearly laid down that the ratio of the decision of the Apex Court in the case of B.C. Srinivasa Shetty is applicable in case of assets which cannot be acquired for a cost. In the instant case, land has been acquired for a cost. The rights which have been transferred form part of the ownership of land. Therefore, the ratio of decision of the Apex Court in B.C. Srinivasa Shetty's case is not applicable to the case of the assessee. To sum up the judgment in the case of B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) is applicable in the cases where there is no cost of acquisition and not in the instant case where the capital assets has been acquired by incurring a definite cost and the date of acquisition is also clearly determinable.
20. In the case on hand, in consideration for the owners irrevocably permitting and authorising granting the right to the Developers the Developers agreed to pay a sum of Rs.11.66 crores to the appellant society. The nature of capital asset which has been transferred relates to Land Breez Co. Operative Housing Society Ltd.11
right to transfer the TDR arising out of the existing land. This right accrued to the appellant society who is the legal and beneficial owner of the land on which the existing flats have already been constructed. The ownership of land lies with the assessee society. As per the section 30 of Maharashtra Society Act, the society is a legal person and can hold property in its own name, members are not the owners of the land/rights therein. Members have received consideration as a result of transfer of capital assets by the society. Consideration to members is arising as a result of transfer. Hence that needs to be taxed in the hands of the society.
21. The representative :of the assessee in para 'I' and also in para 'III' of his submission dated 14.12.2009 filed before AO has very clearly stated that the members have the right to occupy the place in the society. The members of the assessee have a right to occupy the flats allotted to them. Beyond that, the assessee society owns all other rights. Consideration has been received by the members of the assessee under the consent terms only because the assessee has transferred its rights in favour of the Developers. But for the transfer of rights by the assessee the members would not be entitled to any consideration under consent terms.
22. The consideration has accrued as a result of the transfer. As per provisions of section 48 of the Act, capital gains are to be computed by considering full value of consideration accruing as a result of transfer. The consideration of Rs. 8,58,00,000/- has accrued to the members as a result of transfer. The amount may have been paid to the members but it is the amount which accrues as a result of the transfer and but for the transfer by the assessee the members would not have received the amounts. Therefore, this amount of Rs. 8,58,00,000/- received by the members is also chargeable to tax in the hands of the assessee as consideration accruing as a result of the transfer.
23. The right has accrued to the appellant society by virtue of the amendment in development regulations of BMC. It cannot be said that there was no cost incurred for acquiring this right. It is well established through several judicial pronouncements that while acquiring land, there are a bundle of rights which are also acquired and the same may fructify in present or future also. Accordingly, in this case, the "Right" which has materialized by virtue of the original ownership of the land cannot be said to have no cost. The A.O. has rightly applied the relevant case laws that the sum of Rs.11.66 crores is taxable in the hands of the appellant society. Further the A.O. has allowed to the appellant cost to the extent of Rs.71,11,852/- in the assessment order and then arrived at the net long term capital gain of Rs. 10,70,46,274/-. Therefore, it is not correct to say that there is no cost to the appellant society.
24. The cases relied upon by the appellant are based on the principle of mutuality. The AO has dealt with all the case laws cited by the appellant and have distinguished them. However, in this case, the transaction is not taking place between the members of the society and the society itself .who. are otherwise two separate legal entities if a transaction takes place with any third party. The principle of mutuality therefore fails with reference to the "right" and the capital asset which has been Land Breez Co. Operative Housing Society Ltd.12
transferred by the society to a third party. As per the provisions of law, it is the appellant society which is liable to pay tax such capital gains. Therefore, it is held that :-
(i) The appellant is the owner of land admeasuring 3367 sq.mtrs. at Pali Hill, Bandra (W), Mumbai. Even the Hon'ble Bombay High Court has confirmed the rights of society in respect of this land.
(ii) Land is a bundle of rights. In the instant case, when land was purchased (i.e., ownership of land acquired by the society in consequence to the execution of conveyance deed in favour of it), all rights present and future embedded in it are also acquired.
(iii) The appellant society has transferred its TDR entitlement to the developers. Consideration received by the society and the members in this regard under consent terms which are nothing but agreement towards transfer of the TDR entitlement of the society.
(iv) Therefore, the benefit in the form of TDR arising out of the existing land is an immovable property, the transfer of which tantamount to transfer of a long term capital asset and hence liable to be taxed as income under the head 'capital gain'.
(v) Hence, the total consideration of Rs. 11,66,00,000/- (Rs.
3,08,00,000 + Rs.8,58,00,000) received by the society and the members in this regard is chargeable to tax as income under the head 'long term capital gain' in the hands of the appellant society in the A.Y. 2007-2008. The action of the A.O. is fully justified in this regard.
25. The A.O. has discussed elaborately the grounds on which the receipt of Rs.1L66 crores is to be taxed as capital gains in the hands of the appellant society. The A.O. has given adequate reasoning and quoted relevant case laws for doing so. I agree with the reasoning and arguments given by the A.O. for making the impugned additions. Therefore, in my considered opinion, capital gains has accrued on the sum of Rs.11.66 crores to the appellant society. The case laws cited by the appellant do not help the cause of the appellant as discussed above. Therefore, the amount of ` .11.66 crores is liable to be taxed as capital gains or the appellant society and the A.O. has rightly taxed the same in the hands of the appellant society. The action of the AO for doing so is accordingly confirmed. These grounds of appeal are dismissed."
13. Before us, the learned Counsel for the assessee drew our attention to the facts as was incorporated in the assessment order as well as the Commissioner (Appeals)'s order and also referred to the various document in the paper book to clarify the facts incorporated in the impugned orders. He submitted that, in fact, there is no transfer in this case but permission was given to use TDR and no part of the land was ever transferred by the society but mainly permission terms to the developer to carry out the development near the existing building. Therefore, there is no question of any transfer of Land Breez Co. Operative Housing Society Ltd.
13TDR. In support of this contention, he heavily relied upon the decision of Mumbai Bench of the Tribunal in Raj Ratan Palace, ITA no.674/Mum./2004, order dated 25th February 2011. Without prejudice, he submitted that even otherwise also, the chargeability of capital gain on account of transfer of TDRs has been settled by various decisions of the Tribunal, Mumbai Benches, and he referred to several such decisions. Some of the decisions relied upon by him are given as under:-
1. Jethalal D. Mehta v/s DCIT, [2005] 2 SOT 422 (Mum.).
2. Auro Ville Co. Hsg. Sct. Ltd. v/s ACIT, ITA no.570/M/2008, order dated 31st March 2010.
3. Om Shanti Co. Op. Scty. Ltd. v/s ITO, ITA no.2550/M/2008, order dated 28th August 2009.
4. New Shailaja Co. Op. Hsg. Sct. Ltd. v/s ITO, [2009] 121 TTJ (Mum.) 62, order dated 2nd December 2008.
5. ITO v/s Lotia Court Co. Op. Hsg. Sct. Ltd., (2008) 12 DTR (Mum.) 396, order dated 6th June 2008.
6. Maheshwar Prakash Co. Op. Hsg. Sct. Ltd. v/s ITO, [2009] 118 ITD 223 (Mum.), order dated 15th May 2008.
14. On the other hand, the learned Departmental Representative, relying on the reasons given by the Assessing Officer as well as the learned Commissioner (Appeals), argued at length as to how the assessee's case is not covered by the judgment in B.C. Srinivasa Shetty (supra) and the case laws relied upon by the learned Counsel for the assessee are distinguishable.
15. We have carefully considered the rival contentions of the parties and have perused the findings of the authorities below as well as the material available on record. Insofar as the facts narrated herein above, there is no dispute. The crux of the issue before us is that, whether the assessee society which was entitled to utilise the TDR in respect of the land admeasuring 3,367 sq.mtrs. owned by it in the ratio of 1:1 in accordance with the Development Control Rights, 1991, and has transferred this right to Arial View Co-operative Housing Society, vide terms of consent dated 19th December 2006 by which the assessee and its members had received ` 11,66,00,000, spread over in Land Breez Co. Operative Housing Society Ltd.
14assessment year 2007-08 and 2008-09, amounts to transfer. Secondly, whether the amount received from such transfer / assignment of TDRs can be said to be chargeable to tax under the head "Capital Gains". The concept of TDRs has been explained in several decisions of the Tribunal. As culled out from the decision relied upon by the assessee, which has been discussed in succeeding paragraphs, the concept of TDRs originates from the regulation of "Development Control Regulation of Greater Mumbai" i.e., "DCR, 1991", wherein it was provided that the owner or a lessee of a plot, which was reserved for public purpose under the development plan of DCR, would be eligible for award of compensation by way of development right certificate of equivalent Floor Space Index (FSI). In other words, the Govt. decided to grant Transferable Development Rights to the land owners, who agreed to surrender their lands on FSI for public purposes. These TDRs can be transferred to other land owners or building for constructing of the building or additional floors. The plots on which those development rights could be used were termed as "Receiving Plots" and on these plots in addition to whatever FSI were originally available to the owner or lessor of such plots, additional FSI can be allowed to the owner or lessor on using the transferable development rights contained in DRCs for the purpose of construction of the building. Thus, the TDR is available to the owner / lessee of the land which surrenders to the Govt. and, therefore, the acquisition of such TDRs are to detriment the land surrendered by the owner / lessee, and such TDRs can be utilised on any plot vacant or already developed or by erection of additional storeys subject to the FSI available in the DCR. The contentions and reasoning of the Assessing Officer to the extent that the word "Property" not only includes tangible asset but also intangible asset and, therefore, additional FSI available to the assessee in view of DCR, 1991, was a right acquired by virtue of being owner of the plot is correct. Thus, such a right is definitely a "Capital Asset" held by the assessee and assignment of such a right in favour of the developer amounts to transfer of capital asset. In our conclusion, transfer of TDRs amounts to transfer of a "Capital Asset".
16. However, it has to be seen as to whether there was any kind of cost in acquiring these rights. As stated earlier, this right was acquired automatically Land Breez Co. Operative Housing Society Ltd.
15by virtue of DCR, 1991, and what the assessee has transferred is not the plot or the building but a right, parting with which, did not result in parting with land or building. Therefore, such a right cannot be said to be embedded in the land as held by the Assessing Officer and the learned Commissioner (Appeals), because there was no detriment to cost of land by granting such rights. Even though, there was a transfer of a capital asset, however, there was no cost of acquisition or any cost can be ascribed to such right, because the land and the building continued with the possession of the assessee even when transfer of TDR was made to the developer. The reasoning and the logic given by the Assessing Officer and the learned Commissioner (Appeals) that these development rights were embedded with the land and, therefore, the sum chargeable to cost has to be ascribed, in our considered opinion, is not tenable for the reason that these development rights have been available to the assessee as per the DCR, 1991, and is separate and distinct from the original right in land and, hence, it cannot be held that such a right was embedded in the land. Therefore, the conclusion drawn by the Assessing Officer and the learned Commissioner (Appeals) on this score gets failed. In such a situation, computational provisions of section 48, also gets failed because no cost of acquisition can be ascribed to a right which has emanated from DCR, 1991. This issue has come up several times and has has been dealt and discussed in detail by various decisions of Mumbai co-ordinate bench of the Tribunal, as have been referred to by the learned Counsel. In these cases, deep analysis of applicability of section 48, and B.C. Srinivas Sheet's case has been done. For the sake of better appreciation, gist of few of them are incorporated herein below.
(i) The Tribunal in Jethalal D. Mehta, observed and held as follows:-
"We may mention that as far Cadell Wvg. Mill Co. (P.) Ltd. case (supra) is concerned, the Special Bench decision of the Tribunal has since been reversed by the Hon'ble Bombay High Court in the judgment reported as Cadell Wvg. Mill Co. (P.) Ltd. v. CIT[2001] 249 ITR 2652. Suffice to say that for this reason alone revenue's rejection of assessee's claim, by relying upon C'adell Wvg. Mill Co. (P.) Ltd. s case (supra is no longer sustainable in law. We need not go further into this aspect of this aspect of the matter. The only other reason of rejecting the claim that the Land Breez Co. Operative Housing Society Ltd.16
assignment of additional floor space index is that, according to the authorities below, this right has cost of acquisition which consists of cost of purchase of plot, costs of getting the designs approved and costs of constructing the building. In this context, however, what is necessary to appreciate is that the rights assigned to the developer are the rights to receive and apply the transferable development rights, and that these rights arose to the assessee by the virtue of introduction of Development Control Regulation for Greater Mumbai 1991'. Until the point of time these development regulation came into existence, the assessee did not have right to receive and apply the transferable development rights, it is these rights on the assignment of which the assessee has received the impugned amount. Therefore, the expenditure incurred on purchase of plot and construction thereon cannot be said to be the costs for acquisition of these rights. The rights are acquired by the virtue of being owner of the plot in the specified area but that does not mean that the cost incurred on the plot is the cost of acquiring these rights. The effect of the rights being relatable to the leasehold rights in the plot could at best be that the amount received by the assessee on assignment of rights to receive the transferable development rights ends up reducing effective cost of acquisition of the land and building in the said plot. Therefore, as and when the assessee transfers the said plot, building or any portion thereof and while determining capital gains arising on such sale, the cost of acquisition may stand reduced by the amount received by the assessee on assignment of rights to receive the TDRs. The CIT(A)'s observations that this right cannot be said to be without any cost of acquisition because the TDRs have been received on surrender of reserved plot to the Government is ex facie incorrect inasmuch as what we are really concerned with is the right to receive the TDR on the plot owned by the assessee, and not with the right to receive the TDR from the Government. The person getting TDRs from the Government has to surrender the 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 assessee's plot. Similarly, the costs of plot and costs of construction are also not the cost of acquisition of these rights. What the assessee has transferred is not the plot or the building, but a right parting with which does not result in parting with land or building. The costs of obtaining BMC approval for the building plan can also not be said to be the costs of acquisition of these rights as these rights do not arise by the virtue of getting these approvals but by the virtue of a legal right independent thereof. The law is trite, and there is no dispute on the said position, that when an asset has no cost of acquisition, the gains on sale or transfer of same cannot be brought to tax. The law laid down by the Hon'ble Supreme Court in the case of (Shri B.C. Srinivasa Setty [1981j 128 ITR 294] clearly holds so. For all these reasons, we are of the considered view that the receipts on sale of assignment of rights to receive TDR5 are not liable to tax. The authorities below erred in law and on facts in holding to the contrary.
(ii) Further, the Tribunal in Maheshwar Prakash 2 Co. Op. Hsg.
Sct. Ltd. (supra), after relying upon the decisions in Jethalal D. Land Breez Co. Operative Housing Society Ltd.
17Mehta (supra) and D.C. Srinivasa Shetty (supra), observed and held as follows:-
"12. This aspect of the matter has been examined by the Tribunal in the case of Jethalal D. Mehta (supra). In that case, the assessee had acquired the leasehold rights in a plot of land in October, 1971 on which the assessee had constructed two storeys building containing some flats and the FSI available on that was fully exhausted. However, by a virtue of the Development Control Regulations, 1991, the assessee became the owner of the valuable right of availing additional floor space index through transfer development rights. Accordingly he entered into an arrangement with a developer who used TDR on assessee's flat to avail additional FSI against such consideration. The question arose whether the assessee could be chargeable to tax under section 45 of the Act in respect of the consideration received by him. The contention of the assessee before the authorities was that there was no cost of acquisition of the right obtained by him and therefore, the capital gain could not be computed in view of the Hon'ble Supreme Court judgment in the case of B.C. Shrinivasa Shetty (supra). The lower authorities did not accept such contention. However, the Tribunal upheld the contention of the assessee by holding that right to construct the additional floors under the Development Control Regulation, 1991 was acquired without incurring any cost and therefore, assessee was not chargeable to tax in respect of such receipts in view of the aforesaid Hon'ble Supreme Court judgment. The facts of the present case are similar to the aforesaid case and therefore, the said decision would squarely apply to the present case. Even as a rule of precedent, we are bound by the decision of a co- ordinate Bench in the absence of any decision of High Court or the Supreme Court.
13. The contention of the revenue that the aforesaid decision of the Tribunal is not applicable after the amendment of sub-section (2) of section 55 of the Act is also without force. Section 55(2)(a) of the Act which is relevant with reference to the contention of the revenue reads as under :--
"(2) For the purposes of sections 48 and 49, "cost of acquisition",--
(a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours,--
(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and
(ii) in any other case [not being a case falling under sub-clauses (i) to
(iv) of sub-section (1) of section 49], shall be taken to be nil."
Clause, (aa) and clause (ab) of section 55(2) deal with the case of shares or securities and, therefore, the same are not relevant for disposal of this appeal and, therefore, the same are not reproduced here. The perusal of section 55(2)(a) reveals that cost of acquisition is Land Breez Co. Operative Housing Society Ltd.
18to be taken at nil in those cases where the capital asset transferred is either goodwill of business or the trademark or a brand name associated with business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hours. In the present case, the assessee is not carrying on any business and the right to construct additional floors is not covered by any of the assets mentioned in the aforesaid sub-section (2) of section 55. Therefore, the amended provisions of section 55(2) do not apply to the present case and the lower authorities were not justified in taking the cost of acquisition of the capital asset being right to construct the additional floors as nil.
14. We may also refer to the contention of the learned DR that right to construct the additional floors was embedded in the land and, therefore, the present case was akin to the issue of bonus shares and consequently, it cannot be said that there is no cost of acquisition in respect of such right. We are unable to accept such contention of the learned DR for two reasons. Firstly, because it is not the case of the Assessing Officer or the CIT(A) since the cost of acquisition was taken by them as nil as per the amended provisions. Secondly, because the theory of spreading over the cost of original share over the original shares and bonus shares was based on the fact that bonus shares were issued to the detriment of the original shares as held by the Hon'ble Supreme Court in the case of CIT v. Dalmiya Investment Co. [1964] 52 ITR 567. In that case, it was held that by issue of bonus shares the price of original shares had declined in the market and, therefore, it could not be said that acquisition of bonus shares was without cost. However, in the present case, the right to construct attached with the land on the date of purchase of land had already been exhausted by construction of flats prior to 1991 as per the FSI available according to law as it was in force. Therefore, there was no further right to construct any flat on that land. It was because of DCR, 1991 that additional right accrued to the assessee which was distinct and separate from the original right. Therefore, it cannot be said that such right embedded in the land. Even assuming, for the sake of argument, that such right embedded in the land, there was no detriment to the cost of land by granting such right on the assessee-society. On the contrary, price of the land had increased because of the additional right made available to the assessee-society. Therefore, the theory applied by the Hon'ble Supreme Court in the case of bonus shares cannot be applied to the present case.
(iii) In New Shailaja Co. Op. Hsg. Sct. Ltd. (supra), it was observed and held as follows:-
"Held "The assessee was the owner of the land and building and continued to remain the same even after transfer of the said capital asset. Thus, the cost of the land and building of the existing structure could not be attributed to the additional FSI received by means of 1991 Rules. It is true that such right is a capital asset as per the provisions of s. 2(14) but in order to compute capital gains apart from the existence of capital asset, there should be sale consideration accruing as a result of transfer Land Breez Co. Operative Housing Society Ltd.19
of capital asset as well as the cost of acquisition of the asset along with the cost of any improvement thereto, if any. Sec. 48 sets out the mode of computation of income under the head capital gains by providing that the expenditure incurred wholly and exclusively in connection with the transfer of a capital asset along with the cost of acquisition and cost of any improvement, if any, shall be deducted from the full value of consideration received or accruing as a result of the transfer of capital asset. Transfer of capital asset which does not have any cost of acquisition does not result into capital gains chargeable to tax under s.
45. The legislature in its wisdom brought out certain categories of capital assets under s. 55(2) as having cost of acquisition at Rs. nil, where such assets have not been purchased by the assessee for consideration. The effect of this sub-section is that when the assets so specified in sub-s. (2) of s. 55 are transferred, then the cost of acquisition has been taken at Rs. nil except where the assessee had acquired such assets by means of purchasing from the previous owner, and the computation of the capital gain would be done accordingly. There is a difference in the situation when cost of acquisition is Rs. nil and where the cost of acquisition cannot be ascertained or no cost of acquisition has been incurred. The items of capital assets specified in s. 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However if the assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in s. 55(2) then no capital gain would be charged. It is abundantly clear that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible to additional FSI. The land and building earlier in the possession of the assessee continued to remain with it as such even after the transfer of the right to additional FSI for Rs. 48.96 lakhs. The Departmental Representative could not point out any particular asset as specified in sub-s. (2) of s. 55, which would include the right to additional FSI. No capital gains could 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.--Jethalal D. Mehta vs. Dy. CIT (ITA No. 672/Mum/2000) followed; CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) applied."
17. In other decisions also, similar view has been taken by the Tribunal. Thus, respectfully following the ratio laid down in the aforesaid decisions and also as per our findings and observations given above, we hold that even though the transfer of TDR amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head "Capital Gain" for the reason that there is no cost of acquisition in acquiring the right which has been transferred and computational mode given in section 48, thus fails in this case. Therefore, taxing of the receipt from transfer of TDRs under the head capital gain by the Assessing Officer for a sum of ` 10,70,46,274, cannot be Land Breez Co. Operative Housing Society Ltd.
20sustained. Accordingly, the same is directed to be deleted and order of the learned Commissioner (Appeals) is thus reversed.
18. Ground no.7, is an alternative ground and, therefore, no separate adjudication is required.
19. Ground no.8, relates to charging of interest under section 234B.
20. Before us, the learned Counsel contends that this ground is consequential in nature. Accordingly, we direct the A.O to give consequential effect in accordance with law while re-computing the income of the assessee.
21. प रणामतः नधा रती क अपील आं शक वीकत ृ क जाती है ।
21. In the result, appeal is treated partly allowed.
आदे श क धोषणा खले
ु यायालय म दनांकः 14th September 2012 को क गई ।
Order pronounced in the open Court on 14th September 2012 Sd/- Sd/-
बी.
बी. रामकोट
रामकोट य अ मत शु ला
लेखा सद य या यक सद य
B. RAMAKOTAIAH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंुबई MUMBAI, दनांक DATED: 14th September 2012
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file.
स या पत त / True Copy
आदे शानसार
ु / By Order
द प जे. चौधर / Pradeep J. Chowdhury
वर नजी स चव / Sr. Private Secretary
Land Breez Co. Operative
Housing Society Ltd.
21
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंुबई / ITAT, Mumbai
Self drafted Date Initial
Original dictation paid is enclosed at the end of the file
1. Draft dictated on 5.9.2012 Sr.PS
2. Draft placed before author 12.9.2012 Sr.PS
3. Draft proposed & placed 12.9.2012 JM/AM before the second member
4. Draft discussed/approved 12.9.2012 JM/AM by Second Member