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TMI Blog2012 (2) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from the developer as long term capital gain. It is prayed that the said receipt is not taxable at all under the capital gain provisions. Ground No.2: Without prejudice to Ground No. 1 as above, 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 AO in not allowing the payment to two co-owners of Rs.39,34,000/- (Rs.19,67,000/- to each coowner) as cost from the capital gain. It is prayed that this expenditure may kindly allowed as cost while computing the capital gains. Ground No.3: Without prejudice to Ground No. 1 as above, 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 AO in not allowing the solicitors expenditure of Rs.1,00,000/- and Architect's fees of Rs.27,550/-. It is prayed that this expenditure may kindly allowed as cost while computing the capital gains. 3. The additional grounds raised by the assessee reads as under :- Ground No.5 : The learned CIT(A) ought to have allowed deduction in respect of the indexed cost of acquisition towards the cost of the asset or its valuation as on 01.04.1981 whichever i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a registered Agreement for development of the property dt.28.10.2005 with M/S.Heena Builders and Developers, a partnership firm, hereinafter referred to as "the Developer" for demolition of existing structures and putting up new construction. The construction permissible on the property owned by the assessee in accordance with the Development Control Regulations 1991 ("DCR 1991") the present Floor Space Index ("FSI") of the said plot of land was 1 : 1, and on that basis yield/area available for construction on the said plot of land was 8,400 square feet FSI. Besides this, since the said plot of land is capable of receiving Transferable Development Rights ("TDR") as per the provisions of DCR 1991 additional area could be constructed by consuming / loading TDR to the extent of 8,400 square feet FSI on the said plot of land. In these circumstances, building/s that could be constructed on the said plot of land by consuming FSI admeasuring 8400 square feet and TDR admeasuring 8400 square feet. Under the Development Agreement, the Developer was allowed to construct the permissible FSI and also the additional FSI by loading TDR as plot capable of receiving TDR. 6. Certain clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer. The AO computed 1/3rd of Rs.2.59 crores and arrived at sale consideration received by the assessee on transfer of the property at Rs.86,33,333/-. The assessee had claimed expenditures of Rs.32,02,000/- and Rs.7,32,000/- being amount paid to other co-owner and fees paid to Architect, respectively, as deduction, from the full value of consideration received on transfer for determining capital gain. This was also rejected by the AO for the reason that the assessee did not furnish evidence to substantiate the claim. Thus the AO determined the long term capital gain on sale of 1/3rd share of the property by the assessee at Rs.86,33,333/-. 9. Aggrieved by the order of the AO, the assessee preferred an appeal before Ld. CIT(A). Before the Ld. CIT(A) the assessee submitted that the provisions of section 50C of the Act could not be applied where development rights are sold to a builder. Besides the above, the assessee also submitted that it had acquired the property in the year 1963 and in accordance with the Development Control Rules, the assessee could construct only 1 FSI i.e. 8,400 sq. ft. of built up area over the plot. The assessee further submitted that by virtue of the Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch right. Besides the above, reliance was also placed on the decision of the Mumbai Bench of the ITAT in the case of Jethalal D. Mehta vs. DCIT 2 SOT 422 (Mum), wherein in case of her transfer of right as a receiving plot to load TDR it was held that there can be no computation of capital gain possible and therefore the charge fails. 10. The Ld. CIT(A) however, did not agree with the submissions made on behalf of the assessee and he held as follows :- "2.3. I have carefully examined the order of the Assessing Officer and the submissions made by the appellant. I have also perused the order of the Hon'ble Mumbai ITAT in the case of Maheshwar Prakash CHSL V/s ITO (supra) on which the appellant has based his arguments. I find that in Para 9 of the said order, the Hon'ble Tribunal has stated as under: "The perusal of the above scheme shows that TDR is available to the owner or lessee of a land which is surrendered to the Government and therefore, the acquisition of such TDR is detriment to the land surrendered by the owner or lessee. Therefore, it can be said that the cost of the TDR is equal to the cost of the land surrendered. However, such TDR can be utilized on any plot vacant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Long Term Capital Gains on the said amount received is correct and is upheld. However, I find that the Assessing Officer has wrongly applied the provisions of section 50C in the case of the appellant. Section 50C is applicable only on immovable tangible assets. TDR would not fall under the said provisions as it is an intangible asset. The Assessing Officer is therefore directed to calculate the Long Term Capital Gain on transfer, keeping in mind that section 50C is not applicable in the case of the appellant on transfer of TDR." 11. Aggrieved by the relief given by the Ld. CIT(A) in terms of the section 50C of the Act, the Revenue has preferred the present appeal before the Tribunal. Aggrieved by the order of the Ld. CIT(A) in holding that capital gain is chargeable to tax in the hands of the assessee and in rejecting the claim of the assessee with regard to proper computation of capital gain, if it is held to be chargeable to tax, the assessee has raised ground nos. 1 to 3 and additional ground nos. 5 to 7 before the Tribunal. 12. We have heard the rival submissions. Before us the learned counsel for the assessee reiterated the arguments that were put forth before the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging section and Sec.48 which is the computation provision together constitutes an integrated code. When there is a case to which the computation provisions cannot apply at all, such a case was not intended to fall within the charging section. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain. The following were the relevant portion of the decision of the Hon'ble Supreme Court: "Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings s. 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head " Capital gains ". Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that the expression "Development Right" shall mean entire FSI including originating from the said plot of land and/or married to it and right to load consume and use FSI credit by way of TDR and incidental FSI which may available by payment of premium or free of charge. The right to construct building on the said plot of land by consuming FSI admeasuring 8400 square feet (carpet) is a capital asset which was acquired by the Assessee by paying cost. The right as a receiving plot owner to load TDR to the extent of 8400 (carpet) square feet, and other incidental FSI including by FSI that may be obtained/sanctioned by payment of premium as per applicable laws is a right which accrued to the Assessee by virtue of the Development Control Regulations for Greater Bombay, 1991 without payment of any cost, as will be explained in the following paragraphs. 17. Rule 10(2) of Development Control Rules, 1967 provided for grant of extra FSI to the owner of a land including a lessee thereof if the land required by the planning authority for road widening or for constructing new road proposed under the development plan was surrendered by the owner free of compensation as more particularly set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upto the limit of 40% of the area of the plot remaining after such surrender and the balance as a development right in accordance with the Regulations governing the transfer of development rights in Appendix VII. 23. Appendix VII deals with the subject matter of regulation for grant of 'transferable development rights' (TDRs) to owners/developers and prescribes conditions for grant of T.D.R. Under the said regulations the Municipal Commissioner is entitled to issue development rights certificates in favour of the owner including the lessee of the land who surrenders the reserved plot etc. to Municipal Corporation free of compensation. Appendix VII empowers the Municipal Commissioner to issue development rights certificates allowing the owner including the lessee thereof to avail of extra FSI as more particularly set out therein, where the owner or the lessee of the land surrenders the plot of land affected by proposed road widening or by proposal of construction of new roads to the Municipal Corporation free of compensation. Regulation 8 of Appendix VII provides that the rights of original holder of development rights certificates are transferable and development rights certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital asset held by the Assessee has no cost of acquisition nor can it be purchased by paying a price. Therefore it was not possible to compute capital gain by giving any value for the cost of improvement to the capital asset held by the Assessee. As laid down by the Hon'ble Supreme Court in the case of B.C.Srinivasa Shetty (supra) under Sec.48 of the Act 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 ", and " cost of improvement of the capital asset" 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 right as owner of a receiving plot to load TDR on a plot of land is a right which cannot be acquired by just paying money. Therefore there can be no cost of improvement. Sec.45 which is the charging section and Sec.48 which is the computation provision together constitutes an integrated code. When there is a case to which the computation provisions cannot apply at all, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gns 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 Regulations for Greater Mumbai 1991'. Until the point of time these development regulation came into existence, the assessee did riot 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 acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no right was available for any further construction on this plot of land. However, the Municipal Corporation relaxed the development regulations in the year 1991 and on that account additional TDR FSI was allowed under the Development Control Regulation, 1991 (DCR). Thus, the assessee became entitled to construct additional space of 15,000 sq. ft. In view of the availability of such right, the assessee entered into an agreement with M/s. U.S. Magnet Pvt. Ltd. and M/s. Spartek Properties and Securities Pvt. Ltd. on 25-11-2002 for construction of additional floors on the existing structure of the society building and development of the said property against a consideration of Rs. 280 per sq. ft. which amounted to Rs. 42 lakhs. The question before the Tribunal was taxability of the sum of Rs.42 lacs received by the Society. The Tribunal discussed the DCR for Greater Mumbai Regulations and the right of a receiving plot of land to load TDR over and above permissible normal FSI. The Tribunal held "...by virtue of Regulation 14, the FSI of a receiving plot is automatically allowed to be exceeded by 0.8 as mentioned in the said Regulation. For example, a plot in the suburb of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Therefore, assignment of such right in favour of the developers amounted to transfer of capital asset. The contention of the counsel for the assessee that there cannot be any transfer without having TDR is without force since right to construct additional floors and TDR are different and distinct rights which can be transferred for a consideration. 11. Now, the moot question which arises for our consideration is whether the sum of Rs. 42 lakhs received by the assessee can be treated as longterm capital gain chargeable to tax under the Act. The contention of the learned counsel for the assessee is that the right to construct additional floors was acquired by the assessee free of cost and automatically by virtue of DCR, 1991 and, therefore, the computational provisions under section 48 fail and consequently no capital gain can be said to arise under the head 'Capital gains' in view of the judgment of Hon'ble Supreme Court in the case of B.C. Shrinivasa Shetty (supra). On the other hand, the contention of the revenue is that as per the amended provisions of section 55, the cost of acquisition has to be taken as nil and, therefore, the lower authorities were justified in computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to load TDR but also the right to construct the original FSI on the plot of land. In our view this distinction sought to be projected by the CIT(A) is incorrect. The issue raised by the Assessee is that while computing capital gain cost of improvement should also be capable of being determined. The dispute in the case decided by Tribunal in the case of Jethalal D.Mehtha (supra) and Maheshwar Prasad-2 CHS Ltd. (supra) was while computing capital gain cost of acquisition of the capital asset was not capable of determination. As per the law laid down by the Hon'ble Supreme Court in the case of B.C.Srinivasa Shetty (supra) both cost of acquisition and cost of improvement should be capable being ascertained and only then the machinery provisions of Sec.48 can be applied. Therefore if cost of improvement cannot be ascertained the principle laid down in the case of B.C.Srinivasa Shetty would equally apply. The decisions rendered by the Tribunal in the case of Jethalal D.Mehtha (supra) and Maheshwar Prasad-2 CHS Ltd. (supra) clearly lay down that right as owner of a receiving plot to load additional FSI in terms of Regulation 14 of the Regulations is a right for which there is no cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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