TMI Blog2013 (2) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... ta v. Dy. CIT [2005 (1) TMI 595 - ITAT MUMBAI] The perusal of section 55(2)(a) reveals that cost of acquisition is to be taken at nil in those cases where the capital asset transferred is either goodwill of business or the trademark or a brand name associated with business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hours. In the present case, the assessee is not carrying on any business and the right to construct additional floors is not covered by any of the assets mentioned in the aforesaid sub-section (2) of section 55. Therefore, the amended provisions of section 55(2) do not apply to the present case and the lower authorities were not justified in taking the cost of acquisition of the capital asset being right to construct the additional floors as nil. Therefore the transfer of TDR amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head "Capital Gain" for the reason that there is no cost of acquisition in acquiring the right which has been transferred and computational mode given in section 48, therefore, taxing under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection. Consequently, these grounds are dismissed as "not pressed". 3. The main crux of the issue involved in this appeal are arising out of grounds no. 5 and 6, which relates to taxing of capital gain for a sum of Rs. 10,70,46,274, on the total receipt of Rs. 11,66,00,000, arising out of Transfer of Development Rights (for short "TDRs") in respect of land owned by the assessee. 4. Facts relating to the issue as to how the assessee has received the money from the transfer of TDRs have been elaborately discussed in the assessment order as well as the learned Commissioner (Appeals)'s order which, for the sake of ready reference, are also incorporated hereunder:- (i) Late Smt. Dma Dady Baxter was owner of land admeasuring about 5715 sq. mt at Pall Hill Bandra (Survey No. C/1388 to C/1393 etc.) in addition to the bunglow (admeasuring 2,352, sq. mt.) and two other ground floor structures. (ii) On a plot of land admeasuring 3367 sq. mt. out of larger plot of 5715 sq. mt. as mentioned above, a building "Land Breeze" (Stilt + 7 Floor) was constructed by M/s. Great Western Finance Corporation in the year 1978. In accordance with the terms of the development agreement dated 28.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the remaining plot should be stopped. (viii) Being aggrieved SLP was filed against the order dated, 18.04.2006 by the land owner and developers; Meanwhile the appellant society also filed a suit in Bombay High Court on its original side, to further protect its interest. (ix) In the meanwhile, the developers who are promoters of new proposed 'society on balance portion of plot (admeasuring 2348 sq. mtrs.) approach the appellant society and its advocates for settlement. After negotiations a compromise in the form of consent terms was finalized and these terms of consent were filed before the Bombay High Court: (x) The Bombay High Court vide order dated 19.12.2006 dismissed the suit filed before them in terms of the consent on dated 19.12.2006 for want of prosecution. Thus, in the instant case, the appellant M/s. Land Breeze Co-operative Housing Soc. Ltd. made a negotiated settlement with the developers. (ix) Thus, as per the terms of consent, following payments were made to the society and the members of the developers:- Sr. no. Payment made to In A.Y. 2007- 08 (Rs.) In A.Y. 2008-09 (Rs.) Total Consideration (Rs.) 1. La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of TDR arising out of the existing land is an immovable property, the transfer of which is liable to be taxed as income under the head "Capital Gains". The consideration received by the assessee and its members on transfer of its TDRs and entitlements to the developers is nothing but a transfer of a capital asset only. Even the members receiving the consideration are only on account of result of transfer of capital asset by the assessee society and, hence, needs to be taxed in the hands of the assessee only who is having the ownership right on the land. He further observed that in view of the provisions of section 48, it can be inferred that full value of consideration received or acquired as a result of transfer of capital asset has to be taxed in the assessment year for which such capital asset has been transferred which, in the present case, is assessment year 2007-08 and, therefore, the entire consideration is taxable in this year only. 7. The Assessing Officer required the assessee again to justify the claim of exemption of receipts towards transfer of TDRs and as to why the entire consideration received by the assessee and its members cannot be taxed in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be taken into consideration as the decision Shakti Insulated Wires Ltd. (supra) was not taken into consideration and, therefore, are per-incuriam. With regard to the assessee's contention that there was no cost of acquisition, he relied upon the judgment of Hon'ble Supreme Court in A.R. Krishnamurthy v. CIT [1989] 176 ITR 417, that the land is a bundle of rights and when consideration is paid for land, a part of it is allocable to each of the rights which goes along with the ownership of the land. Based on these judgments, he held that there is a transfer of capital asset held by the assessee which is chargeable to tax. 9. On the mode of computation of section 48, reliance placed on the various decision of the Tribunal by the assessee, the Assessing Officer held that the same are per incuriam because none of these decisions have taken into consideration the earlier decision of Shakti Insulated Wires Ltd. (supra). Lastly, he held that the Hon'ble Supreme Court in A.R. Krishnamurthy (supra), has distinguished and explained the ratio of B.C. Srinivasa Shetty (supra) and, therefore, there is no merit in the contentions of the assessee that no cost of acquisition can be ascribed. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, expenditure totaling to Rs. 27,40,598 was incurred towards acquisition of land. Taking into consideration, the facts of the case, the value of land owned by the society as on 1.4.1981, is arrived at Rs. 27,40,598. On perusal of copy of balance sheet of the society as on 31st March 2007, annexed along with the return of income, the value of land and building is shown at Rs. 95,34,000. Thus, it can be seen that value of the land as on 1.4.1981, determined at Rs. 27,40,598, is just and fair. the ownership of the plot of land entitled the assessee to consume the permissible TDR, the original cost of land has to be consequentially spread over the increased TDR provided by the Development Control Regulation 1991. Since the assessee was entitled to the TDR in the ratio of 1:1 of the size of land holding, the value of TDR entitlement of the society as on 1.4.1981, is arrived at Rs. 13,70,299 (i.e., 50% of Rs. 27,40,598). In view of the above, the income chargeable to tax under the head "long term capital gain" is computed as under:- Income From Capital Gain (As discussed above) Rs. 11,66,00,000 Less: Expenses incurred in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of the ownership of land. Therefore, the ratio of decision of the Apex Court in B.C. Srinivasa Shetty's case is not applicable to the case of the assessee. To sum up the judgment in the case of B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) is applicable in the cases where there is no cost of acquisition and not in the instant case where the capital assets has been acquired by incurring a definite cost and the date of acquisition is also clearly determinable. 20. In the case on hand, in consideration for the owners irrevocably permitting and authorising granting the right to the Developers the Developers agreed to pay a sum of Rs. 11.66 crores to the appellant society. The nature of capital asset which has been transferred relates to right to transfer the TDR arising out of the existing land. This right accrued to the appellant society who is the legal and beneficial owner of the land on which the existing flats have already been constructed. The ownership of land lies with the assessee society. As per the section 30 of Maharashtra Society Act, the society is a legal person and can hold property in its own name, members are not the owners of the land/rights therein. Memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not correct to say that there is no cost to the appellant society. 24. The cases relied upon by the appellant are based on the principle of mutuality. The AO has dealt with all the case laws cited by the appellant and have distinguished them. However, in this case, the transaction is not taking place between the members of the society and the society itself who are otherwise two separate legal entities if a transaction takes place with any third party. The principle of mutuality therefore fails with reference to the "right" and the capital asset which has been transferred by the society to a third party. As per the provisions of law, it is the appellant society which is liable to pay tax such capital gains. Therefore, it is held that :- (i) The appellant is the owner of land admeasuring 3367 sq.mtrs. at Pali Hill, Bandra (W), Mumbai. Even the Hon'ble Bombay High Court has confirmed the rights of society in respect of this land. (ii) Land is a bundle of rights. In the instant case, when land was purchased (i.e., ownership of land acquired by the society in consequence to the execution of conveyance deed in favour of it), all rights present and future embedded in it are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal in Raj Ratan Palace v. Dy. CIT [ITA no. 674/Mum./2004], order dated 25th February 2011. Without prejudice, he submitted that even otherwise also, the chargeability of capital gain on account of transfer of TDRs has been settled by various decisions of the Tribunal, Mumbai Benches, and he referred to several such decisions. Some of the decisions relied upon by him are given as under:- 1. Jethalal D. Mehta (supra). 2. Auro Ville Co. Hsg. Sct. Ltd. v. ACIT, [ITA no. 570/M/2008, order dated 31st March 2010]. 3. Om Shanti Co. Op. Scty. Ltd. v. ITO, [ITA no.2550/M/2008, order dated 28th August 2009]. 4. New Shailaja Co. Op. Hsg. Sct. Ltd. v. ITO [2010] 36 SOT 19 (Mum.) (URO) 5. Lotia Court Co. Op. Housing Society Ltd. (supra). 6. Maheshwar Prakash-2 Co. Op. Hsg. Sct. Ltd. v. ITO [2009] 118 ITD 223/[2008] 24 SOT 366 (Mum.). 14. On the other hand, the learned Departmental Representative, relying on the reasons given by the Assessing Officer as well as the learned Commissioner (Appeals), argued at length as to how the assessee's case is not covered by the judgment in B.C. Srinivasa Setty (supra) and the case laws relied upon by the learned Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy developed or by erection of additional storeys subject to the FSI available in the DCR. The contentions and reasoning of the Assessing Officer to the extent that the word "Property" not only includes tangible asset but also intangible asset and, therefore, additional FSI available to the assessee in view of DCR, 1991, was a right acquired by virtue of being owner of the plot is correct. Thus, such a right is definitely a "Capital Asset" held by the assessee and assignment of such a right in favour of the developer amounts to transfer of capital asset. In our conclusion, transfer of TDRs amounts to transfer of a "Capital Asset". 16. However, it has to be seen as to whether there was any kind of cost in acquiring these rights. As stated earlier, this right was acquired automatically by virtue of DCR, 1991, and what the assessee has transferred is not the plot or the building but a right, parting with which, did not result in parting with land or building. Therefore, such a right cannot be said to be embedded in the land as held by the Assessing Officer and the learned Commissioner (Appeals), because there was no detriment to cost of land by granting such rights. Even though, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate 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 Regulation for Greater Mumbai 1991'. Until the point of time these development regulation came into existence, the assessee did not 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 acquisition of the land and building in the said plot. Therefore, as and when the assessee transfers the said pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1971 on which the assessee had constructed two storeys building containing some flats and the FSI available on that was fully exhausted. However, by a virtue of the Development Control Regulations, 1991, the assessee became the owner of the valuable right of availing additional floor space index through transfer development rights. Accordingly he entered into an arrangement with a developer who used TDR on assessee's flat to avail additional FSI against such consideration. The question arose whether the assessee could be chargeable to tax under section 45 of the Act in respect of the consideration received by him. The contention of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DR that right to construct the additional floors was embedded in the land and, therefore, the present case was akin to the issue of bonus shares and consequently, it cannot be said that there is no cost of acquisition in respect of such right. We are unable to accept such contention of the learned DR for two reasons. Firstly, because it is not the case of the Assessing Officer or the CIT(A) since the cost of acquisition was taken by them as nil as per the amended provisions. Secondly, because the theory of spreading over the cost of original share over the original shares and bonus shares was based on the fact that bonus shares were issued to the detriment of the original shares as held by the Hon'ble Supreme Court in the case of CIT v. Dalmiya Investment Co. [1964] 52 ITR 567. In that case, it was held that by issue of bonus shares the price of original shares had declined in the market and, therefore, it could not be said that acquisition of bonus shares was without cost. However, in the present case, the right to construct attached with the land on the date of purchase of land had already been exhausted by construction of flats prior to 1991 as per the FSI available acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets by means of purchasing from the previous owner, and the computation of the capital gain would be done accordingly. There is a difference in the situation when cost of acquisition is 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 s. 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However if the assessee had 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 s. 55(2) then no capital gain would be charged. 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 Departmental Representative could not point out any particular asset as specified in sub-s. (2) of s. 55, which would include the right to additional FSI. No capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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