TMI Blog2014 (12) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded to levy and assess the gains derived as capital gains - It may be that subsection (2) of section 55 clause (a) having been amended, there is a stipulation with regard to the tenancy rights. It was also argued that the tenancy rights now can be brought within the tax net and in the present case the asset or the benefit is attached to the property - It is capable of being transferred. - all this may be true but as the Hon'ble Supreme Court holds it must be capable of being acquired at a cost or that has to be ascertainable - additional FSI/TDR is generated by change in the D. C. Rules - a specific insertion would therefore be necessary so as to ascertain its cost for computing the capital gains - Therefore, the Tribunal was in no error in concluding that the TDR which was generated by the plot/property/land and came to be transferred under a document in favour of the purchaser would not result in the gains being assessed to capital gains - what the Assessee sold was TDR received as additional FSI as per the D. C. Regulations - It was not a case of sale of development rights already embedded in the land acquired and owned by the Assessee - the Assessee had not incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under an agreement dated 1st June, 2006 for a total consideration of ₹ 2,23,25,157/-. This amount has been held by the Assessing Officer to be chargeable to tax as income under the head long term capital gains in the hands of the Assessee in the year under Appeal. That was confirmed by the Commissioner. 3) Mr. Malhotra has invited our attention to section 54E of the Income Tax Act and submitted that the subsection which has been invoked in this case together with the Explanation would denote that this was a case where the gains were derived by the Assessee. Once the gains were derived in the manner set out in this section, then, the computation thereof has been done in accordance with law. There was no necessity of interfering with the order passed and concurrently. 4) On the other hand, Mr. Singh appearing on behalf of the Assessee would submit that the Tribunal has rightly appreciated the controversy. It was identical to the two cases dealt with earlier. One in the case of New Shilaja Cooperative Housing Society Ltd. and another was Shakti Insulated Wires Ltd. The Tribunal has assigned reasons for arriving at the conclusion. That conclusion is recorded by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is true that the Assessing Officer invoked section 50C and computed these gains, but the coordinate Bench decision in the case of New Shailaja Cooperative Housing Society Ltd, involved similar controversy and the Tribunal concluded that the sale of TDR does not give rise to any capital gains chargeable to tax. The Tribunal's conclusion is that the situation and factually in both cases is identical. While it is true that the Revenue has not pursued the matter in the case of New Shailaja Cooperative Housing Society Ltd. because the report of the Registry indicates that an Appeal was brought to challenge that order but came to be dismissed for non compliance of the office objections. However, on a pertinent question as to how the computation of this sale of TDR could be made and in terms of the legal provisions, reliance is placed on section 50C of the Income Tax Act. The other provision and which has been relied upon in this case is subsection (2) of section 55. Both these provisions read as under: S. 50C (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 and 49, cost of acquisition , (a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case not being a case falling under sub-clauses (I) to (iv) of subsection (1) of section 49, shall be taken to be nil; (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee (A) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of subclauses (I) and (ii) of clause (b) (i) in relation to the original financial asset, on the basis of which the assessee becomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its liquidation and the assessee has been assessed to income tax under the head Capital gains in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (iv) ***** (v) where the capital asset, being a share or a stock of a company, became the property of the assessee on (a) the consolidation and division of all or any of the share capital of the company into shares of larger amount***** 9) A bare reading thereof would indicate how the legislature contemplates that income chargeable under head capital gains has to be computed. The mode of computation is laid down by section 48, whereas by section 49, the cost with reference to certain modes of acquisition has been set out. For the purposes of both sections, the legislature has devised the scheme in section 55 and subsection (2) thereof clarifies that for the purposes of sections 48 and 49, cost of acquisition in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as never intended by section 45 to be the subject of the charge . In that case, the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Pathak J. as his Lordship then was, speaking for the court said (page 300) what is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possess the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts of a certain case, be acquired without the payment of money (9) In other words, an asset which is capable of acquisition at a cost would be included within the provisions pertaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary. (12) We agree. A tenancy right is acquired with reference to a particular date. It is also possible that it may be acquired at a cost. It is ultimately a question of fact. In A. R. Krishnamurthy v. CIT (1989) 176 ITR 417 this court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case, however, the Department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court, we uphold the decision of the High Court on this issue. (13) Were it not for the inability to compute the cost of acquisition under section 48, there is, as we have said, no doubt that a monthly tenancy or leasehold right is a capital asset and that the amount of receipt on its surrender was a capital receipt. But because we have held that section 45 cannot be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. [See S. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 ITR 700 (SC)] (17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or nonrecurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT (1966) 61 ITR 428 (SC), 432, 435. 11) Thus, the conclusion of the Hon'ble Supreme Court is that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head Capital gains as opposed to assets in the acquisition of which no cost at all can be conceived. In the present case as well, the situation was that the FSI/TDR was generated by the plot itself. There was no cost of acquisition, which has been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. It may be that subsecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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