Income Tax Appellate Tribunal - Mumbai
Paranugraha Co.Op Hsg. Soc. Ltd, Mumbai vs Assessee on 22 January, 2014
`आयकर अपील य अ धकरण "एच" यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "H", MUMBAI
ी पी.एम. जगताप, लेखा सद य एवं ी ववेक वमा, या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. : 280/Mum/2011
(Assessment year: 2002-03)
Paranugraha Co Op Hsg Soc Vs Asst. Commissioner of
Ltd, Income Tax - Circle -19(2),
Parijat, Aayakar Bhavan,
North Avenue, Mumbai -400 020
Santacruz (W),
Mumbai -400 054
PAN: AAAAP 1737 A
अपीलाथ (Appellant) यथ (Respondent)
Appellant by : Shri H N Motiwalla
Shri Dalpat Shah
Respondent by : Shri K C P Patnaik
सनवाई
ु क तार ख /Date of Hearing : 22-01-2014
घोषणा क तार ख /Date of Pronouncement : 29-01-2014
आ दे श
ORDER
ववेक वमा, या स:
PER VIVEK VARMA, JM:
The appeal arises from the order of CIT(A) -30, Mumbai, dated 01.10.2010, wherein, the assessee has raised the following grounds and additional grounds of appeal:
"1. On the facts and in the circumstances of the case and in law, the ld CIT(Appeals)-30, Mumbai, has erred in confirming the taxability of surplus on sale of "Development Rights" as Short Term Capital Gain ignoring the fact that the same had no cost of acquisition and hence is non-taxable capital receipt. 1.2 Without prejudice to the above, the ld. CIT(Appeals) erred in confirming the contention of the ld. Dy. CIT - 19(2), Mumbai, of assessing the said Long Term Capital Gain as short term capital gain, ignoring the fact that the Development Rights were a part and parcel of the land which was an asset of the "society"
which is more than 30 years old.
1.3 The ld. CIT (Appeals) erred in not appreciating the fact that your appellant had not sold any T.D.R. but had transferred "Development Rights" only.
2. The Appellant craves leave to add, amend, alter, modify, delete and/or change all or any of the above ground on or before the date of hearing".
2 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 ADDITIONAL GROUNDS:
1.4 The said CIT(A) erred in confirming the view of the said AO that only proportionate cost of Rs. 45,13,035/- of TDR relating to 6887 Sq.ft. was allowable in computing Capital Gain when the consideration of Rs. 86,08,750/-
related to Development Rights for construction of 6th and 7th floors and also for additional construction in the existing building, repairs to the existing building, modifications in the building to make it Earthquake Proof etc. for which the balance TDR of 2047 Sq. Ft. was used and therefore the entire cost of TDR of Rs. 58,54,430/- was allowable.
1.5 Without prejudice to the above, the said CIT(A) erred in not appreciating the fact that in computing Capital Gain the said AO had deducted only Rs. 45,13,035/- being proportionate cost of 6887 sq.ft. of TDR ignoring the proportionate cost of the space in the exiting building given to the Developers to construct 6th and 7th floors above the existing 5 floors in the building. We request the Hon'ble Members to kindly admit these additional grounds as they relate to the computation of capital gains which is the main dispute in the above appeal. We hope our request will receive kind consideration of the Hon'ble Members.
2. The solitary issue involved in the appeal is the treatment to be accorded to the sale of T D R by appellant CHS.
3. The facts as noted by the AO are that the assessee acquired TDR in the current financial year for 8934 sq. ft. vide agreement dated 16.05.2001 at the cost of Rs. 42,87,600/- and sold 6887 sq.ft. to various individuals at an aggregate value of Rs. 86,08,750/- in the same financial year. Since the sale and purchase of TDR fell in the current year, the AO held that it was a case of STCG, instead of LTCG shown by the assessee. The AO, therefore, computed the STCG on 6887 sq.ft. sold at Rs. 40,95,715/- and brought the same to tax.
4. The assessee approached the CIT(A), who sustained the working and reasoning adopted by the AO and confirmed the addition made by the AO.
5. Aggrieved the assessee is now before the ITAT.
6. Before us, the AR pointed out that in the instant case, the assessee acquired the TDR as per DC Rules 1991, brought in by the BMC. Since the TDR is embedded to the land utilization, therefore, as per the rules, the assessee CHS got the TDR rights as far back as 1991.
3 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011
7. In so far as the issue of sale of TDR was concerned, the assessee CHS already having a unit in existence, consisting of 5 floors intended to, exploit the TDR, entered into development rights with 5 persons to construct 6th & 7th Floors. To facilitate the impending transaction the assessee entered into agreements with the developers (one agreement placed in the APB i.e. with Shri Hemant Shah) on 30.04.2001, wherein, amongst other clauses, the following clauses have been agreed upon "THIS AGREEMENT is made at Bombay this 30th day of April 2001 between Paragraph Cooperative Housing Society Ltd., a society registered under the provisions of Maharashtra Cooperative Societies Act 1960 under BOM/HMB/2918 of 1971 and having its registered office at Plot No. 52, Parijat Apartments, North Avenue, Santacruz(W), Mumbai -400 054, hereinafter called "the Society' (which expression shall unless repugnant to the context hereof will include its successors and assigns) AND Shri Hemant Shah, residing at Roop Kala, West Avenue, Santacruz (W), Mumbai - 400 054, hereinafter referred to as Developer (which expression unless repugnant to the context hereof will include his heirs, executors, administrators and permitted assignees) We refer to the discussions we had with you wherein we had informed you about our plans for the construction of the 6th and 7th floors as under:
1. ...
2. The society has the possibility of constructing two additional floors by purchase of Transfer of Development Rights (TDR) as per the Development Control Regulations in force.
3. For the said purpose the society has appointed an Architect who has vide his letter of 29 December 2000 addressed to the Executive Engineer, H-Ward, sought the permission for the purchase of Slum TDR and for the said purpose submitted the necessary plans. The Brihan Mumbai Municipal Corporation (BMC) has vide its letter dated 4th January 2001 granted the said permission and requested him to advice his clients i.e. our Society to purchase the admissible slum TDR and submit the same to BMC for utilization of TDR. Thus the approval in principle for the purchase of TDR has been received from BMC.
4. You have identified a flat No. 12 A admeasuring approx. 1,607 Sq.ft. built-up area equal to 149.29 Sq.mts. (F.S.I.) on 6thfloor which you have agreed to develop. The society has agreed to offer you the said flat' for development on the following terms and conditions.
i.. You shall arrange to deposit a sum of Rs. 14,15,000/- on or before 30th April 2001 to enable the society to purchase the TDR.
ii. ...
iii. ...
5. You along with the other developers, have insisted during the joint meeting with all developers held on 25/03/01 at Parijat Apts. that the building should be properly repaired and should be made earthquake proof and also necessary modifications shall be made to look it modern. The society shall have no objection of your contributing to carry out for above work from the repair fund to be created for the purpose.
6. To have uniformity of construction and smooth working conditions it is agreed by you along with other. developers to appoint a common Architect, Consulting Engineer, Contractors and Supervisor who will work under the guidance of the society and developers.
7. The plans will be prepared by the Architect appointed by the society and approved by the developers and shall apply for necessary approval from B.M.C. after purchasing T.D.R. for additional work.
9. The consideration payable by you shall be as follows.
4 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 a. Rs.1,250/- Sq. ft. of built-up area for grant of development right which includes cost of T.D.R.
8. As per the preliminary estimate the Architect has informed that the construction will be completed in 15 month, from the day C.C. is obtained subject to force major conditions".
8. The AR pointed out, that the AO reproduced the submissions of the assessee, wherein it was pointed out that the purchase of the TDR was vide agreement dated 16.05.2001. It was on this factum, that the AO concluded since the assessee purchased and sold the TDR in the same financial year, the assessee was entitled to STCG and not LTCG.
9. The AR pointed out that TDR is a benefit granted by the BMC to the owner of the land and since the assessee was the owner of the land since a very long time, the TDR got embedded with the owner, on the application of DC Rules of 1991, and hence the assessee was the owner of TDR since 1991. It was also pointed out that in so far as the assessee is concerned, no cost is involved. He also submitted that along with TDR, the assessee received FSI and to make the FSI equal to the existing FSI on 1:1 ratio, it bought an extended FSI, which on the composite sale of the development rights generated certain LTCG, which has been offered for taxation at Rs. 27,54,320/-.
10. To support the contention that the TDR does not have any cost element, the AR placed reliance on the decision of ACIT vs IGE India Ltd, reported in 58 SOT 62, wherein, the Tribunal held, "11. Thus, in view of the consistent stand taken by the Tribunal in all the cases relied upon by the learned counsel, we hold that even though the transfer of TDR amounts to transfer of capital asset, however, the same cannot be subjected to tax under the head capital gain for the reason that there is no const of acquisition in acquiring the flat which has been transferred and computation mode given under Section 48, thus, fails in such cases. Accordingly, the finding and the view taken by the CIT(A) is upheld".
11. He also placed reliance on the decision of Sambhaji Nagar CHS vs ITO, ITA No. 431/Mum/2012, wherein the coordinate Bench held, "11. Before the authorities below as well as before us, reliance has been placed on behalf of the assessee on the decision of Coordinate Bench of this Tribunal in the case of New Shailaja Cooperative Housing Society Ltd. in respect of its claim that sale of TDR does not give rise to any capital gain chargeable to tax. A perusal of the decision rendered by the Tribunal in the said case shows that the facts involved in the case of New Shailaja Cooperative Housing Society Ltd. are exactly similar to that of the present case in as much as the assessee society in 5 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 that case had acquired land in the year 1972 along with building thereon constructed by use of floor space index of approximately 11000 sq. feet. By virtue of the enactment of the Development Control Regulation Act, 1991, the assessee became entitled to an additional FSI. The assessee sold such entitlement right to the builders for Rs.48.96 lakhs. The Assessing Officer brought the income on sale of transfer of Development Rights (TDR) to capital gain tax which again was upheld by the learned CIT(A). Before the Tribunal, the assessee contended that since the TDR transferred by it did not have any cost of acquisition, no capital gain could be computed. The Tribunal accepted this contention of the assessee by holding as under :
"The concept of TDR (Transfer Development Right), was introduced in Mumbai in the Development Control Rules, 1991 of the Bombay Municipal Corporation. These rights are given in the form of a Development Right Certificate (CRC) which is issued by the Municipal Corporation. TOR means the development potential. The FSI of a plot of land is separated from the plot and is allowed to be transferred. TDR 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. Adverting to the facts of the instant case, the assessee became entitled to the additional FS/ of around 11,000 sq. ft. due to its land holding. It transferred this entitlement for a consideration of Rs. 48.96 lakhs to 'D'. Before the authorities it was contended on behalf of the assessee that such right transferred by the assessee did not have any cost of acquisition and, hence, no capital gains could be computed. The said consideration was only towards the transfer of the entitlement to the additional FSI. 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 PSI received by means of 1991 Rules. It is true that such right is a capital asset as per the provisions of section 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 of capital asset as well as the cost of acquisition of the asset along with the cost of any improvement thereto, if any. Section 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 the consideration received or accruing as a result of the transfer of capital asset. The Supreme Court in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294/5 Taxman 1 has held that transfer of capital asset which does not have any cost of acquisition does not result into capital gains chargeable to tax under section 45. The Legislature in its wisdom brought out certain categories of capital assets under section 55(2) as having cost of acquisition at Rs. nil, where such assets have not been purchased by the assessee for a consideration. The effect of this sub- section is that when the assets so specified in sub-section (2) of section 55 are transferred, then the cost of acquisition is taken at Rs. nil, except where the assessee has acquired such assets by means of purchasing them from the previous owner and the computation of the capital gains would be done accordingly. Them is a difference in the situation when cost of acquisition is at 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 section 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However, if the assessee has 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 section 55(2), then the judgment of the Supreme Court in B.C. Srinivasa Setty's case (supra) shall apply and no capital gains would be charged. Coming back to the facts of the instant case, it was 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 PSI. The land and
6 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 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 revenue could not point out any particular asset as specified in sub-section (2) of section 55, which would Include the right to additional PSI. Hence, no capital gains could be charged on the transfer of the additional FSI by the assessee for a sale consideration of Rs. 48.96 lakhs for the reason that it had no cost of acquisition."
12. It is manifest from the above decision of the Tribunal rendered in the case of New Shailaja Cooperative Housing Society Ltd. that the issue involved in the present case as well as all the material facts relevant thereto are similar to that of the case of New Shailaja Cooperative Housing Society Ltd. and the decision rendered in the said case is squarely applicable in the present case. We, therefore, respectfully follow the decision of the Coordinate Bench of the Tribunal rendered in the case of New Shailaja Cooperative Housing Society Ltd. (supra) and delete the addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of capital gain arising out of sale of TDR. Ground No.2 is accordingly allowed".
12. In the light of these decisions, the AR submitted that the assessee acted only as a facilitator for the developers to buy the TDR and additional FSI, which is evident from clause 9 of the Development Agreement, as placed on record (APB 10).
13. The AR, therefore, submitted that computation of capital gains on sale of TDR as STCG was misconstrued by the revenue authorities, since no cost is involved in its acquisition to the owner.
14. The DR vehemently supported the revenue authorities and also placed reliance on the decision of Shakti Insulated Wires Ltd vs JCIT, reported in 87 ITD 56 (Mum) and pleaded that there was no infirmity in the order of the revenue authorities and hence the same should be sustained.
15. We have heard the rival contentions and have perused the material placed before us and the decisions cited before us. On going through the facts, the undisputed position was:
a) that the CHS was registered under Maharashtra Coop Societies Act, 1960 under certificate no. BOM/HMG/2918 of 1971;
b) as per Appendix VII-A (Regulation 34), and relevant conditions are, ...
"1. The owner (or lessee) of a plot of land which is reserved for a public purpose in the development plan and for additional amenities deemed to be reservations provided in accordance with these Regulations, excepting in the case of an existing or retention user or any required compulsory or recreational open space, shall be eligible for the award of Transferable Development Rights (TDRs) in the form of Floor Space 7 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 Index (FSI) to the extent and on the conditions set out below. Such award will entitle the owner of the land to FSI in the form of Development Rights Certificate (DRC) which he may use himself or transfer to any other person".
2. ...
3. Development Rights (DRs) will be granted to an owner or a lessee only for reserved 'lands which are retainable/non-retainable under the Urban Land (Ceiling and Regulations) Act, 1976, and in respect of all other reserved lands to which the provisions of the aforesaid Act do not apply, and on production of a certificate to this effect from the Competent Authority under that Act before a Development Right is granted. In the case of non-retainable lands, the grant of Development Rights shall be to such extent and subject to such conditions as Government may specify. Development Rights (DR5) are available only in cases where development of a reservation has not been implemented i.e. TDRs will be available only for prospective development of reservations".
4. ...
5. ...
6. ...
7. ...
8. If a holder of a DRC intends to transfer it to any other person, he will submit the DRC to the Commissioner with an appropriate application for an endorsement of the new holder's name, i.e. transferree on the said Certificate. Without such an endorsement by the Commissioner himself, the transfer shall not be valid and the Certificate will be available for use only by the earlier original holder.
9. A holder of a DRC who desires to use the FSI credit certified therein on a particular plot of land shall attach to his application for development permission valid DRCs to the extent required".
10. ...
c) the assessee sold the development rights to the developers prior to the receipt of the permissions from Development Commissioner;
d) the assessee charged lump sum sale amount from the developers, which included cost of TDR to the developers.
16. Taking into account these facts, it is factually clear that the TDR is embedded in the land for the purposes of additions made by the owner (or lessee). This TDR in the form of additional FSI is negotiable by the owner to the buyer/developer only for prospective development. As is clear from the extracted copy of the Appendix VII-A (Regulation
34), there is no element of cost to the owner. On the basis of this factual aspect, coming out of DRC itself, the first issue of chargeability of capital gains gets ousted, as, there is no cost involved and placing reliance on the decision of Hon'ble Supreme Court in the case of CIT vs B C Shrinivas Shetty, reported in 128 ITR 294, no capital gain is exigible. This view was adopted by the coordinate Benches in the cases of Sambhaji Nagar (supra) and IGE India Ltd. (supra). The issue was 8 Paranugraha Co Op Hsg Soc Ltd ITA 280/Mum/2011 taken contrary, in the decision of Shakti Insulated Wines Ltd (supra). The decision was referred to and its factual findings were taken note of in the decision of Sambhaji Nagar (supra) and the case was factually distinguished, before arriving at the decision in favour of the assessee. Since the primary issue involved in the case at hand pertains to exigibility of capital gains and its tax treatment, the issue at hand, is covered in the cases of Sambhaji Nagar (supra) and IGE India Ltd (supra).
17. On reading of the various clauses of the development agreement, which have been extracted and reproduced earlier in the order, hold that the instant sale of TDR was acquired on behalf of the developers and sold normally to the developers (as emerging from the Development Agreement). This is LTCG, but, does not entail any capital gain tax, as there was no cost involved with the assessee's CHS.
17. With regard to sale of additional FSI, we find that the assessee has itself offered the same as LTCG.
18. In these circumstances, we set aside the order of the CIT(A) and direct the AO to delete the addition made on account of sale of TDR as STCG.
19. All grounds of appeal including additional grounds are thus allowed.
20. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 29th January, 2014.
Sd/- Sd/-
(पी.एम. जगताप) ( ववेक वमा)
लेखा सद य याईक सद य
(P.M. JAGTAP) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 29th January, 2014
9 Paranugraha Co Op Hsg Soc Ltd
ITA 280/Mum/2011
त/Copy to:-
1) अपीलाथ /The Appellant.
2) यथ /The Respondent.
3) The CIT (A)-30, Mumbai
4) The CIT, City -19, Mumbai,
5) वभागीय त न ध "एच" , आयकर अपील य अ धकरण, मंब
ु ई/
The D.R. "H" Bench, Mumbai.
6) गाड फाईल
Copy to Guard File.
आदे शानसार
ु /By Order
/ / True Copy / /
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, मंबु ई
Dy./Asstt. Registrar
I.T.A.T., Mumbai
*च हान व. न.स
*Chavan, Sr. PS