Income Tax Appellate Tribunal - Mumbai
Ram Kumar Malhotra, Mumbai vs Department Of Income Tax on 14 May, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'D' MUMBAI
BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM)
ITA No. 4843/Mum/2009
Assessment year-2006-07
The ITO 21(1)(4), Shri Ram Kumar Malhotra,
Pratyakshakar Bhavan, 39, Swara, 11th Road,
Bandra-Kurla Complex, Vithal Nagar CHS,
Bandra, Vs. JVPD Scheme, Juhu,
Mumbai Mumbai-400 049
PAN-AAGPM6573J
(Appellant) (Respondent)
Appellant by: Shri Peeyush Jain
Respondent by: Shri K.Shivram & Shri Ajay R. Singh
ORDER
PER SMT. ASHA VIJAYARAGHAVAN (JM) This appeal preferred by the Revenue is directed against the order dt. 19.6.2009 passed by the Ld. CIT(A)-XXI, Mumbai for the assessment year 2006-07.
2. The facts of the case are that the assessee acquired the property under the registered lease dt. Sept. 1977 and become the co-owner of the property and was holding 5 shares of the society. The assessee entered into a development agreement with M/s. P.R. Investment for development of the said property (bungalow) to construct 7 stories building as per the approved plans. The assessee retained proportionate portion of FSI in the said plot for their own residential accommodation to be constructed by the develop2er for a consideration of Rs. 21,00,000/-. The balance FSI was utilized by the developer for construction of the building. The developer was authorized to use the TDR as per applicable law for the 2 ITA No. 4843/M/09 development of the plot. By this arrangement, the assessee had given development rights to the developer for construction of the property. Transfer of development rights being capital asset, the income arising from the sale thereof results in capital gains. Since the assessee retained such rights for more than 36 months, it was treated as Long Term Capital Gains.
3. The Assessing Officer held that the recitals of the agreement clearly and unambiguously show that the assessee had not extinguished his right, title and interest in the property in any manner and continues to hold the lease rights of the property jointly with Shri Anil Kumar Malhotra. The AO also held that the arrangement by way of this development agreement is to enable the developer to bring in marketable TDR on the plot and construct and develop the same and sell the constructed area of TDR to the outside people of his choice, being people with no right, title and interest in the plot of land. Accordingly, the AO held that it is a case of getting a compensation for loading and developing TDR by new structure and therefore the proceeds are in the nature of income from Other Sources.
4. Before the Ld. CIT(A) the Authorised Representative of the assessee made detailed submission which is as under:
The Ld. AR stated that as per the terms of development, the assessee was entitled for carpet area of 2000 sq. ft. and open terrace of 575 sq.ft for a cost of Rs. 21,00,000/- to be appropri9ated against the sale consideration payable to the assessee amounting to Rs. 2.56 crores.
Further, the developer was also authorized to use the TDR as applicable. The right, title and interest in the plot have not been transferred, but the new members who acquire the developed property was to be admitted as nominal members of the society. Out of total consideration, the assessee made an investment of Rs. 1 crore in NABARD & SIDBI Capital Gains Bonds and therefore showed the Long Term Capital Gains at Nil in the return of income.
3 ITA No. 4843/M/09The Ld. AR further made detailed submissions in which he has dwelt upon the definition of capital asset and has claimed that development rights in a property is also a property by itself and would be included in the expression "capital asset". The ownership of property is a bundle of rights and it includes ownership over the development potential of the land. The assessee made the following submissions to claim that TDR loaded and subsequent transfer involves transfer of capital asset:
"It is respectfully submitted that the fact that the development rights are capital assets is further substantiated from the fact that development rights are immovable property and are capable of specific performance.
Recently the Bombay High Court in Chheda Hsg. Dev. Corpn. A partnership firm Vs Bibijan Shaikh Farid & Ors. 2007 (3) MHLJ 402 (Bom) Dealing with the specific performance of Agreement for use of TDR i.e. development agreement held that FSI/TDR are benefit arising from the land consequently must be held as immovable property."
5. The Ld. CIT(A) held as follows:
"Once it has been decided that sale of FSI in the form of development rights results into capital gains, it is crystal clear that the compensation received by the appellant has to be assessed as capital gains. The loading of TDR has been possible on the plot of land in question only on account of the ownership right of the appellant subsisting in the piece of land. Transfer of such TDR to the developer through development agreement, therefore, clearly results in capital gains. The AO is, accordingly, directed that the gain arising on transfer of FSI/TDR rights be assessed as capital gain for which he will make the necessary calculation of sale consideration and cost of acquisition and/or improvement. He will also allow exemption u/s. 54 & 54EC of the I.T. Act, 1961 to the extent of investments made, after due verification."
6. Aggrieved by the order of the Ld. CIT(A), Revenue is in appeal before us.
7. The Ld. Counsel for the assessee Shri Shivraman submitted that own2ership of property is a bundle of rights . FSI/TDR are benefit 4 ITA No. 4843/M/09 aruising from land consequently must be held as immovable property and relied on the decision of Chheda Housing Development Corpn. Vs Bibijan Shaikh Farid & Others 2007 (3) Mh. L.J wherein the Mumbai High Court has held as under:
"The agreement under consideration is an agreement for entrusting the work of development to a party with added rights to sell the constructed portion to flat purchasers, who would be forming a Co-operative Hsg. Soc. To which society, the owner of the land, is obliged to convey the constructed portion as also the land beneath construction on account of statutory requirements.
The Court observed that an immovable property under the General Clauses Act, 1897 u/s. 3(26) has been defined as under:
"Immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth". If, any benefit arises out of the land, then it is immovable property. Considering Sec. 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the land. In Sikandar & Ors. Vs Bahadur & Ors. XXVII Indian Law Reporter, 462, a Division Bench of the Allahabad High Court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of Sec. 3 of the Indian Registration Act, 1877. A lease, therefore of such right for a period of more than one year must be made by registered instrument. A division Bench of the Oudh High Court in Ram Jaiwan & Anr. Vs Hanuman Prasad & Ors. AIR 1940 Oudh 409 also held that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable property. A similar view has been taken by another Division Bench of the Allahabad Court in Smt. Dropadi Devi Vs Ram Das and Ors., AIR 1974 Allahabad 473 on a consideration of Sec. 3(26) of General Clauses Act. From these judgements what appears is that a benefit arising from the land is immovable property.
8. Therefore the Court held that FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property. Hence 5 ITA No. 4843/M/09 development rights is a capital asset and transfer of such rights leads to capital gains.
9. The Ld. Counsel placed before us the decisions of the various Benches of Tribunal wherein it has been held that there is no cost of acquisition for the FSI transfer to the developer and hence there is no taxable capital gains.
10. We have heard both the parties. In the decision of the ITAT Mumbai Bench in the case of New Shailaja Co.Operative Hsg, Soc. Ltd. Vs ITO in ITA No. 512/M/07, the Tribunal has observed as under:
"We have heard the rival submissions and perused the relevant material on record. The concept of T.D.R (Transfer Development Right) as noted by the AO on page 9 of the order 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 (DRC) which is issued by the Municipal Corporation. TDR 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 case, we find that the assessee became entitled to the additional FSI of around 11,000 sq.ft. due to its land holding. The assessee transferred this entitlement for a consideration of Rs.48.96 lakhs to M/s. D.K. Builders."
11. Again the Tribunal in that case held as under:
"Coming back to the facts of the instant case 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 learned D.R. could not point out any particular asset, as specified in sub-section (2) of section 55, which would include 6 ITA No. 4843/M/09 the right to additional FSI. In our considered opinion, no capital gain can 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. Our view is fortified by the above referred order of the Mumbai Bench of the Tribunal in Jethalal D. Mehta Vs. Dy. CIT which was also cited before the ld. CIT(A). No material has been brought to our notice to show that the said order has been modified or reversed by the Hon'ble High Court. Further, the ld. D.R. could not point out any contrary decisions. Respectfully following the precedent, we accept this ground of appeal".
The Tribunal in the above mentioned case was dealing with transfer of additional FSI. In the instant case the facts are similar where the assessee has transferred 50% of the FSI they are entitled to in favour of the developer. The land continues to be with the assessee. Thus, there is no transfer of land by the assessee in favour of the developers. The assessee has received consideration only for granting right to utilize 50% of the FSI and construct building and deal with the same. Therefore, the ratio of the Tribunal decision stated supra will be equally applicable to the instant case also. In that case, it has been held that there is no cost of acquisition for the FSI transfer to the developer and hence there is no taxable capital gains. Applying the ratio of the Tribunal, there will be no liability to capital gains as there is no cost of acquisition of the asset transferred.
In the circumstances, the addition of Rs.76,64,008/- made by the AO is deleted. The assessee's appeal is allowed on this issue."
12. Similar view has been taken in the case of ITO Vs Lotia Court Co.Op. Hsg. Soc. Ltd. (2008) 12 DTR 396, Jethalal D. Mehta Vs Dy. CIT 2 SOT 422 (Mum) and Maheshwar Prakash 2 c.h.s. Vs ITO 20 DTR 269 (Mum). Therefore following the aforesaid decisions, we are of the opinion that the Ld. CIT(A) was right in assessing the transfer of FSI/TDR under the head "capital gain" instead of assessing the same under the head "income from other sources". However, as there is no cost of acquisition of the asset transferred, there will be no liability to capital gains.
7 ITA No. 4843/M/0913. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on this 14th day of May, 2010 Sd/- Sd/-
(R.S. SYAL) (ASHA VIJAYARAGHAVAN)
Accountant Member Judicial Member
Mumbai, Dated 14th May, 2010
Rj
Copy to :
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-concerned
5. The DR 'D ' Bench
True Copy
By Order
Asstt. Registrar, I.T.A.T, Mumbai
8 ITA No. 4843/M/09
Date Initials
1 Draft dictated on: 6.5.2010 Sr. PS/PS
2. Draft placed before author: 7.5.2010 ______ Sr. PS/PS
3. Draft proposed & placed before _________ ______ JM/AM
the second member:
4. Draft discussed/approved by _________ ______ JM/AM
Second Member:
5. Approved Draft comes to the Sr. _________ ______ Sr. PS/PS
PS/PS:
6. Kept for pronouncement on: _________ ______ Sr. PS/PS
7. File sent to the Bench Clerk: _________ ______ Sr. PS/PS
8. Date on which file goes to the _________ ______
Head Clerk:
9. Date of dispatch of Order: _________ ______