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Shri Manohar H Kakwani, M/s. K. Mahesh Kumar Versus Income Tax Officer, Ward-13 (3) (1)

2015 (12) TMI 447 - ITAT MUMBAI

Disallowance of exemption claimed on amount received from developer towards transfer of development rights (in short "TDR") - Held that:- There is no dispute to the fact that the TDR rights accrued to the assessee under the Development Control Rules, 1991. It is further evident, instead of utilising the TDR rights himself, the assessee decided to transfer such rights to the developer for construction. However, there is no two opinion with regard to the fact that as far as the acquisition of deve .....

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ved on account of sale of TDR rights is not taxable, the other issues raised by the assessee relating to claim of exemption under section 54 of the Act and enhancement of compensation have become redundant and not required to be adjudicated upon. - Decided partly in favour of assessee. - ITA No. 7582/Mum/2014 - Dated:- 9-10-2015 - Rajendra, AM And Saktijit Dey, JM For the Appellant : Shri K R Lakshminarayanan For the Respondent : Dr Santosh Mankoskar ORDER Per Saktijit Dey, JM This is an appeal .....

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in short "TDR"). 4. Briefly the facts relating to this issue are, the assessee an individual, filed his return of income for the assessment year under consideration on 30th September 2009, declaring total income of ₹ 15,23,090. During the assessment proceedings, the Assessing Officer, while verifying the return of income filed by the assessee, noticed that the assessee has claimed exemption of the amount received by him on account of transfer of development rights which amounts t .....

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exemption under section 54EC of the Act. The Assessing Officer completed the assessment by computing long term capital gain on sale of TDR at ₹ 2,32,56,607. 5. Being aggrieved of such computation of long term capital gain, the assessee preferred appeal before the first appellate authority. The assessee, before the learned Commissioner (Appeals), again claimed exemption from capital gain on the amount received on sale of TDR. It was the submissions of the assessee that as there is no cost .....

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lease hold rights to the assessee, the claim that capital gain cannot be computed in the absence of cost of acquisition is not acceptable. In this context, he relied upon the decision of the Tribunal, Mumbai Bench, in Chiranjeev Lal Khanna v/s ITO, [2011] 132 ITD 474 (Mum.). Having held so, the learned Commissioner (Appeals) proceeded to enhance the assessment by estimating the market value of the flats received by the assessee as well as restricting exemption under section 54 of the Act. Again .....

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iterating the stand taken before the Departmental authorities, submitted before us that the assessee has retained for himself FSI admeasuring 5,580 sq.ft. which was to be utilised in construction of 3½ residential flat in the new building which the developer constructed and handed over to the assessee for construction cost of ₹ 80 lakhs adjusted against the compensation. It was submitted, as the assessee has not transferred any property to the developer, there cannot be any capital .....

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ost of acquisition to the TDR obtained by the assessee under the Development Control Rules, 1991, capital gain cannot be computed. The learned Counsel for the assessee also relied upon another decision of the Hon'ble Jurisdictional High Court in CIT v/s Land Breez Co-operative Housing Society Ltd., in ITA no.334 of 2013, dated 11.03.2015, expressing similar view. As far as reliance placed by the learned Commissioner (Appeals) on the decision of the Tribunal, Mumbai Bench, in Chiranjilal Khan .....

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aim that there is no cost of acquisition cannot be accepted. He, therefore, submitted that the claim of exemption by the assessee is without any basis. 8. In the rejoinder, the learned Counsel for the assessee submitted that the assessee never voluntarily computed long term capital gain on the compensation received on sale of TDR. Only when compelled by the Assessing Officer, as an alternative argument, the assessee has submitted computation of long term capital gain showing cost of acquisition .....

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st of acquisition in the computation of long term capital gain submitted before the Assessing Officer, his claim that there is no cost of acquisition cannot be accepted. However, as could be seen, the assessee from the very beginning is claiming the compensation received on sale of TDR rights to be exempt from taxation. Only as an alternative argument, the assessee has submitted a computation of long term capital gain at the instance of the Assessing Officer. In our view, that cannot be construe .....

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rned, there is no cost to the assessee. Therefore, the issue to be decided is whether capital gain can be computed in respect of capital asset which has no cost of acquisition. The Hon'ble Jurisdictional High Court in Sambhaji Nagar Co-operative Housing Society Ltd. (supra) while considering identical nature of dispute relating to computation of capital gain on sale of TDR rights acquired under Development Control Rules, 1991, after considering the decision of the Hon'ble Supreme Court i .....

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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 subsection (2) of section 55 clause (a) having been amended, there is a stipulation with regard to the tenancy rights. However, even in the case of tenancy right, the view taken by the Hon'ble Supreme Court, after the provision was substituted w.e.f. 1st April, 1995, is as above. The further argument is that the tenancy rights now can be brought within the t .....

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n 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. The factual backdrop is noted by the Tribunal in para 3 and thereafter the rival contentions. The Tribunal concluded and relying upon its order passed in two other cases that what the Assessee sold was TDR received as additional FSI as per the D. C. Regulations. It was not a case of sale of de .....

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concluded that the Assessee had not incurred any cost of acquisition in respect of the right which emanated from 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. Even after the transfer of the right or the additional FSI, the position did not undergo any change. The Revenue could not point out any particular asset as specified in subsection (2) of section 55. The conclusion of the Tribunal is .....

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