2015 (6) TMI 1061 - AT - Income Tax

Transfer of TDR - Long term capital gain OR Income from other sources - levy of capital Gains Tax on society - Held that - The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations it is held that the assessee is not liable to pay Capital Gains Tax though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law. In this appeal the income received by the assessee on transfer of TDR has been taxed by the lower authorities as income from other sources. In view of our above observations the receipt on transfer of TDR and in terms of the consent terms decree of the Court is though capital receipt but can not be subjected to Capital Gains Tax . The said receipt therefore can not be taxed even under the head Income from other sources . - Decided in favour of assessee.

Summary

Issues Involved:
Assessment of capital gains tax on the assessee's income from transfer of development rights/additional FSI and rejection of the claim by the CIT(A) based on the initial declaration in the return of income.

Analysis:
1. Assessment of Capital Gains Tax:
- The assessee declared income under 'Business income,' 'capital gains,' and 'income from other sources.' The AO assessed the returned income and taxed the capital gains despite the assessee's claim that it was exempt.
- The amount in question was received from a housing society for transfer of development rights/additional FSI. The AO taxed this amount as capital gains, which the CIT(A) confirmed.
- The CIT(A) observed that the assessee voluntarily offered the amount as capital gains and should have filed a revised return if claimed otherwise. The CIT(A) upheld the AO's action, considering it an afterthought by the assessee.
- However, the Tribunal had previously held that such receipts cannot be subjected to capital gains tax, as there was no cost of acquisition for the transferred rights. The Bombay High Court also upheld this decision in a related case.
- The Tribunal held that the TDR receipts in the assessee's hands are not taxable based on the High Court's decision, treating them similarly to the society's case.

2. Rejection of Claim by CIT(A) and Appellate Jurisdiction:
- The CIT(A) rejected the claim that income cannot be assessed less than the returned income, citing the initial declaration by the assessee. The AR argued against this, referencing a Gujarat High Court case and the powers of appellate authorities to entertain claims not made before the AO.
- The High Court's decisions emphasized that appellate authorities can consider claims not raised before the AO, ensuring taxpayers are not burdened with taxes they are not liable for.
- The Tribunal directed the AO to process the claim of refund for capital gains tax and held that the assessee is not liable for this tax, despite the initial declaration in the return of income.

3. Tax Treatment of TDR Receipts:
- The lower authorities treated the income received by the assessee on transfer of TDR as income from other sources. However, based on the Tribunal's observations and the High Court's decision, this receipt cannot be taxed under any head, including 'Income from other sources.'
- Both appeals of the assessee were allowed based on the above analysis, and the Tribunal pronounced the order accordingly on 17.06.2015.