TMI Blog2012 (2) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... is held that though the order of the AO or CIT(A) are not clear on this aspect, but the inevitable conclusion that one can reach is that the AO has allowed deduction u/s.24(a) – Decided against the assessee. - ITA No. : 3053/Mum/2010, ITA No. : 2650/Mum/2010 - - - Dated:- 8-2-2012 - SHRI P. M. JAGTAP, SHRI N.V. VASUDEVAN, JJ. Assessee by : Shri Vijay Mehta Department by : Shri Parthasarthi Naik O R D E R Per N. V. Vasudevan (JM) : ITA No. 3053/Mum/2010 is an appeal by the Revenue, while ITA No. 2650/Mum/2010 is an appeal by the assesse. Both these appeals are directed against the order dated 27.01.2010 of CIT-23, Mumbai relating to the Assessment Year 2006-07. 2. The grounds of appeal nos. 1 to 3 raised by the assessee and the additional grounds of appeal sought to be raised by the assesse before the Tribunal for the first time and the grounds of appeal of the Revenue are all in relation to the taxation of capital gain on sale of the property owned by the assessee. These grounds read as under:- Ground No.1 : On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in upholding the action of the A.O. taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above ground(s) be set aside and that of the Assessing Officer be restored. 4) The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary . 5. We shall first take up for consideration Ground No.1 raised by the Assessee in his appeal in which the Assessee has contended that the consideration received by the Assessee for allowing development of property owned by him under a Development Agreement with a developer is not chargable to tax as capital gain u/s.45 of the Income Tax Act, 1961 (the Act). The facts relevant for adjudication of the aforesaid ground are that the Assessee, who is an individual, and two his brothers were co-owners owning leasehold rights over a plot of land measuring 8400 Sq.ft. in Vile parle, Survey No.287 (Part) and C.T.S.No.45, hereinafter referred to as the property having acquired the same by virtue of deed of assignment dated 10.4.1963 registered as Sl.No.1507/63 with the sub-registrar of assurances. A building known as Ashirwad had been constructed over the property consisting of ground plus two floors. There were 9 premises in the building so constructed out of which 6 were occupied by tenants and 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e feet, and other incidental FSI including by FSI that may be obtained/sanctioned by payment of premium as per applicable laws. (underlining by us for emphasis) 7. The owners were to get 2,689 sq. ft. carpet area comprising of two flats admeasuring 1,362 sq. ft. carpet area of two flats, one in the 2nd floor and the other in the 5th floor. Besides the constructed area, the developer also agreed to pay a consideration of Rs.2,11,00,000/-. The manner in which the same has to be paid is set out in clause 43A of the agreement. 8. The assessee filed a return of income for the A.Y. 2006-07, wherein he declared capital gain on transfer of the property at a sum of Rs.29,54,023/. The AO was of the view that the total monetary consideration for transfer of the property was Rs.2,11,00,000/- and the assessee as a 1/3rd owner was to get Rs.70,33,000/-. The AO further found that the registration authorities have determined a value of the property for the purpose of registration and stamp duty at Rs..2.59 crores. The AO held that the provision of section 50C of the Act were applicable and accordingly adopted the value of Rs.2.5 crore as the full value of consideration received on transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... build an additional area of 8,400 sq. ft. As far as the right of the assessee as owner of receiving plot is concerned, it was an improvement of a capital asset originally owned by the assessee for which it was not possible to determine cost of acquisition. The assessee submitted that as laid down by the Hon'ble Supreme Court in the case of CIT vs. B. C. Srinivasa Setty, 128 ITR 294 (SC) where in respect of a capital asset it was not possible to determine the cost of acquisition or cost of improvement, then capital gain on transfer of such capital asset cannot be brought to tax u/s.45 of the Act. On the same principle, the assessee submitted that since the cost of improvement of the property could not be ascertained, the computation provision of section 45 fail and, therefore, no capital gain can be brought to tax in the hands of the assessee. In this regard, the assessee placed reliance on the decision of the Mumbai Bench of the ITAT in the case of Maheshwar Prakash-2 Co-operative Housing Society Ltd. vs. ITO (2008) Vol 24 SOT 366 (Mum) wherein on identical facts the Tribunal had held that there can be no capital gain when right to load TDR is granted by the owner of a receiving pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any cost. Regulation 14 makes it clear that FSI! of receive plot shall be allowed to be excluded in the prescribed manner. Such right was made available automatically without paying anything either to the BMC or to the government . This is clearly indicative of the fact that the Hon bte Tribunal has held that there are two separate and distinct rights arose as per DCR 1991 i.e. TDS and the right to construct additional floors. The first would have an inbuilt cost and the later would be without any cost. Complete reading of the said order makes it clear that in case where only additional FSI is transferred by the Society to a developer, who uses TDR obtained from elsewhere, no capital gains would result. However, if the owner/s transfers the TDR plus additional FSI that had incurred to it on account of the DCR 1991, TDS would definitely have a value and would be a capital asset on which capital gains are to be calculated. In view of this, it cannot be said that no capital gains arose to the appellant since as per the statement of the appellant; the appellant has sold or transferred the TDR to the Developer alongwith additional FSI for certain amount of money. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(14) to mean "property of any kind held by an assessee" and therefore was of the widest amplitude, and apparently covers all kinds of property and goodwill is not expressly excluded by the definition. The Hon ble Court however held that the definitions in section 2 of the Act are subject to an overall restrictive clause viz., unless the context otherwise requires". The Hon ble Court therefore went into the question whether contextually section 45, in which the expression "capital asset" is used, excludes goodwill. The Hon ble Court after referring to Sec.48 which provides the mode of computation of capital gain viz., deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the cost of acquisition of the capital asset ", held that the asset contemplated in sec.45 of the Act is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. The Hon ble Court held that goodwill is something built up by the carrying on of a business or profession and cannot be acquired by just paying money. Therefore there can be no cost of acquisition for goodwill wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head. 15. It can thus be seen that for attracting charge to tax under the head capital gain there are certain conditions necessary to be fulfilled, viz., (a) There must be a capital asset; (b) There should be a transfer of the capital asset; (c) The capital asset should be something which can be acquired by paying a cost i.e., it should be capable of determining the cost of acquisition of the capital asset as well as cost of improvement if any to the capital asset. (d) There must be accrual of consideration for transfer of capital asset. 16. In present case what was transferred by the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 and Appendix VII thereto. The object of 1991 was to make liberal provisions for transfer of development rights so as to encourage owners to surrender plots needed for road widening or road construction free of compensation and free of compensation. 20. Regulation 2(42) of 1991 Regulations define the expression "floor space index" (FSI) as a quotient of the ratio of the combined gross floor area of all floors, excepting areas exempted from the purview of the regulations, to the total area of the plot as set out therein. 21. Regulation 32 of the said Regulations prescribe the maximum permissible floor space indices and tenement density for various occupancies and locations and for various use zones as set out in Table 14 there under. Different floor space index was prescribed by Regulations 32 for development of plots in residential zones and residential zones with shop line etc. situate in island city on the one hand and the plots of land situate in suburbs and extended suburbs of Greater Bombay on the other hand. 22. Regulation 33(1) of the said Regulations provided that such 100% of the FSI of the land surrendered by the owner or the lessee to the Corporation for roads, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut not so as to exceed in any plot a total built-up FSI higher than that prescribed in Regulation 14 in this Appendix. Regulation 14 of the said Regulations is reproduced in extenso. Regulation 14 of Appendix VII reads as under : "14. The FSI of a receiving plot shall be allowed to be exceeded by not more than 0.4 in respect of a DR available in respect of the reserved plot as in this Appendix and upto a further 0.4 in respect of a DR available in respect of land surrendered for road-widening or construction of new roads according to sub-regulation (i) of Regulation 33. 26. In the case of the Assessee entitlement of floor space index was FSI 1.00 in normal course as per Regulation 32 of the Regulations i.e., right to construct 8400 Sq.ft. of built up area. As a receiving plot owner in terms of Regulation 14 of the Regulations, the Assessee had a right to load another 8400 Sq.ft. of built up area. The right as receiving plot owner is a right which accrued to the Assessee by virtue of the Regulations in the year 1991. Thus this right was improvement to the capital asset held by the Assessee. This right could not be acquired by paying a price. The right to normal FSI has cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional floor space index. Additional storeys of the building were thus constructed, which, under the arrangements that the assessee had with developer, belonged to the developer. In consideration of allowing the said developer to construct on the said additional floor space, the assessee has received a consideration of Rs. 33,62,500. The right to construct this additional floor space have been thus assigned to the developer and in consideration of this assignment, the said sum of Rs. 33,62,500 is received. The dispute which has travelled in appeal before us is whether or not this amount is taxable in the hands of the assessee. The assessee's contention that there was no cost of acquisition of this right as 'receiving plot', and, therefore, the sale of this right cannot lead to a taxable capital gain in the hands of the assessee, did not find favour with the assessing officer. The Tribunal on the aforesaid claim of the Assessee held as follows: We need not go further into this aspect of this aspect of the matter. The only other reason of rejecting the claim that the assignment of additional floor space index is that, according to the authorities below, this right has cost of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294(SC) clearly holds so. For all these reasons, we are of the considered view that the receipts on sale of assignment of rights to receive TDRs are not liable to tax. The authorities below erred in law and on facts in holding to the contrary. 28. In the case of Maheswar Prasad 2 CHS Ltd. (supra) the Tribunal had to consider a case where The assessee a co-operative housing society owned a building viz., Maheshwar Prakash-2 in Santa Cruz, Mumbai. This building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e automatically without paying anything either to BMC or to the Government. 10. In view of the above discussion, let us now deal with the contentions raised by learned counsel for the assessee. Section 45 of the Act is the charging section in respect of profits or gains arising from the transfer of capital asset. The expression capital asset has been defined in clause (14) of section 2 of the Act according to which capital asset means property of any kind held by an assessee whether or not connected with the business or profession. It excludes certain assets from the scope of the above definition with which we are not concerned. The word property not only includes tangible assets but also includes intangible assets as held by the Hon ble Supreme Court in the case of B.C. Shrinivasa Shetty (supra) wherein the goodwill was held to be a capital asset. Even the right to obtain conveyance of the property has been held to be as capital asset by the Hon ble Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594. In view of this legal position, it is held that the right to construct the additional storeys on account of increase in FSI by virtue of Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 29. The above decisions are directly applicable to the facts of the case of the Assessee in this appeal. The only reason for the CIT(A) to reject the claim of the Assessee was that in the cases referred to above the Assessee s as owners of receiving plot permitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 31. Ground No.4 raised by the assessee in its appeal reads as follows :- Ground No.4: On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in upholding the action of the A.O. in not allowing a deduction at the rate of 30% on the sum of Rs.50,000/- in respect of House property income. It is prayed that the A.O. may be directed to allow the deduction under section 24 of the Act. 32. The AO found that the assessee owned three housing units. He gave allowance for one self occupied property and determined income from house property in respect of the other two residential units by estimating the same at Rs.50,000/-. The assessee s claim before the Ld. CIT(A) was that the AO had not given 1/3rd deduction u/s.24(a) of the Act on the annual value determined. This was rejected by the Ld. CIT(A) by holding that the property were self occupied properties. The submission of the assessee before the Ld. CIT(A) was that even in respect of self-occupied property deduction u/s.24(a) of the Act should be allowed. 33. Before us, the same submissions as was made before CIT(A) were reiterated. We have considered the submissions of the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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