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ITO Ward 21 (1) (1) , Mumbai Versus Shri Bharat Raojibhai Patel

2016 (6) TMI 297 - ITAT MUMBAI

Transfer of land and building in term of development agreement - whether constitutes Long term capital gain or income from other sources - entitlement of exemptions u/s. 54 - Held that:- In the present case what was transferred by the assessee was development rights in respect of the property. On the plot of land owned by the assessee in co-ownership, which was subject matter of development agreement, certain area of construction was permissible, which was the normal FSI permissible as per the d .....

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TDR over and above normal FSI, are rights which accrue to the assessee by virtue of development control regulation of the state government. These are rights over property, which are capital in nature and comes within the definition of capital asset u/s. 2(14) of the Act. The consideration received by the assessee is for transfer of rights over such capital asset for the reason that the 3rd party purchaser has no interest over the land is not relevant. The permission to load the TDR on permissib .....

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of section 50C - Held that:- In the present case assessee received consideration in two-folds i.e. partly cash and partly in kind i.e. by way of property in the shape of flats in the re-developed property. Such transactions are thus a combination of sale and exchange.We find that as per development agreement the market value of assessee’s share is ₹ 2,31,41,000/-. Further, assessee has received the sum of ₹ 11.20 lacs due to fall in free area committed by the developer i.e. committe .....

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ue disclosed in the development agreement. - Decided against revenue - ITA No. 5038/Mum/2010 - Dated:- 31-5-2016 - Shri Mahavir Singh, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Appellant : Smt Bharati Singh For the Respondent : Shri Sanjay R Parikh ORDER Per Mahavir Singh, Judicial Member This appeal by revenuee is arising out of the order of the CIT(A) - 32, Mumbai, in appeal No.CIT(A)-32/21(1)(1)/IT-261/09-10 dated 31.03.2010. The assessment was framed by the ITO 21(1)(1 .....

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uation u/s 50C of the Act for the purpose of computing Long Term Capital Gains for development agreement. For these two issues, the revenue has raised the following two grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in giving finding that Sec. 50C is applicable only in case of transfer of land and building without considering the fact that in the instant case, the development right could not be executed without transfer of land and building. 2. .....

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under consideration, the assessee along with his brother executed an agreement of sale-cum-development of the said property dated 01.12.2006 with a builder viz. M/s. M L Builders for the following consideration: a. Two flats of 4000 sq. Ft. Carpet area each b. Car parking space c. Consideration in cash amounting to ₹ 3 crores (Rs.1.75 crores each) Another condition placed was that as per plans approved by the Municipal Corporation, the developer in case reduces the area then he has to pay .....

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xed Cost Land valued as on 1981 Building 1274000 6612060 1st Bldg 1985 953308 3958135 2nd Bldg 1998 834974 1309219 98-99 188695 279011 99-2000 1854832 2474699 Total Land & Bldg Cost 5105809 14633123 Less: 50% Share of cost 7316562 7316562 Capital gain 20104286 Less: Exemption u/s 54 Value of Flat Recd 9062928 Less: Exemption u/s. 54 EC Investment in REC Bonds 5000000 Less: Exemption u/s. 54 Capital Gain Scheme 6000000 20062928 Taxable Long Term Gain on sale of House Property (co-owned) 41358 .....

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der: In view of the above, the entire amount of ₹ 3,50,00,000/- (assessee s share being 50% the amount of ₹ 1,75,00,000) is treated as income from other sources. Further, due to the difference in the carpet area as agreed upon in the above said agreement of giving 4000 sq. ft. (each) to the co-owners, the aggregate area of the 3rd & 4th floors is 3776.22 st. ft only. Due to the difference area of 224 sq.ft., carpet are for both the 3rd & 4th floors the developer has made a se .....

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al benefit received by way of development agreements is worked out to ₹ 2,76,82,928/- 4. Further, the AO also noted that as per stamp duty valuation the rates /market valuation of the property is at 4,62,82,000/- as against the value declared by the assessee at ₹ 3,50,00,000/- vide first agreement dated 1.12.2006 and further in second agreement the value adopted is ₹ 34,36,000/- as against 11,20,000/- offered by the assessee. Accordingly, the AO verified the factual details and .....

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velopment rights as capital asset u/s. 2(14) of the Act. 5. As regards the application of the provisions of section 50C for adopting the stamp duty valuation, the CIT(A) held that the consideration received at ₹ 2,76,82,928/- is higher than the stamp authority valuation and accordingly deleted the directions of the AO. The CIT(A) also observed that the provisions of section 50C is applicable only in the case of transfer of land or land and building and not to other capital asset such as de .....

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ereto agree, record and confirm that no transfer of the said property or any part thereof is effected or intended to be effected in favour of Developers as contemplated under section 53A of the Transfer of Property Act. The learned counsel for the assessee also referred to page 78 of the paperbook wherein, the owners have agreed to grant development rights only by virtue of the development agreement dated 01.12.2006. He drew our attention to clause 13 at page 78. The learned counsel for the asse .....

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a) ₹ 3,00,00,000 (Rupees Three Crores only) immediately on the execution of this Agreement (the receipt whereof the Owners do hereby admit and acknowledge) to be shared equally by the Owners b) ₹ 50,00,000/- (Rupees Fifty Lacs only) to be shared equally by the Owners, being the balance monies, within seven days from the date of sanction of the plans by the Municipal Corporation of Greater Mumbai and the IOD being granted in respect thereof and simultaneously against the Owners vacat .....

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er shall pay a lump sum agreed amount of ₹ 5000 per sq. ft. carpet area for any shortfall in the area to be allotted to the owners. 8. In view of these facts and circumstances, the learned counsel for the assessee argued that the development right is a property by itself which will fall in the expression capital asset as defined under section 2(14) of the Act. It was explained by the learned counsel that the term property as stated in the definition of capital asset u/s. 2(14) does not mer .....

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(Bom) and also on the decision of the Hon ble Karnataka High Court in the case of CIT vs. Dinesh D Ranka [2016] 380 ITR 440 (Kar). In view of these decisions, the learned counsel for the assessee stated that transfer of property under development agreement is a capital asset and this is supported by the propositions cited supra. 9. In respect to the other issue of not considering the stamp duty valuation value adopted by AO for development agreement u/s. 50(c) of the Act. Ld. Sr. DR argued that .....

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the plot of land of the assessee by demolishing the existing bunglow i.e. the residence of the assessee and his brother. For the sake of clarity, clause 2 of the development agreement is reproduced below:- The owners hereby agree at the costs of the developers to grant to the Developers and the development rights as contained here in only for the purpose of the said property being plot No. 34 admeasuring about 1016 square yards equivalent to 849.50 square meters and admeasuring 825.50 sq. Mtrs. .....

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nd constructing thereon a new residential building at the Developers costs by utilising thereon the entire FSI and TDR as may be presently available and strictly as per the plans that may be approved by the Municipal Corporation of Greater Mumbai (the Corporation) and the IOD which may be granted. We find that the assessee has filed final FSI calculation in respect to above property. As per the above stated agreement and calculation, the assessee has not only sold his right to load TDR on plot b .....

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ty as stated in the definition of Capital Asset u/s. 2(14) does not merely mean physical property but also includes rights, title or interest in it and that ownership of land carried with it bundle of rights attached to it, of which the right of development is most important one. 11. Learned Counsel for the assessee relied on the decision of Hon ble Karnataka High Court in the case of CIT and others Vs. Dinesh D. Ranka (2016) 380 ITR 440 (Kar), where in Hon ble High Court has considered the issu .....

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ness or profession but does not include what is defined under sub-clause (i) and (ii) of section 2(14), namely the definition clause of capital asset. The words employed in subclause (i) are sale , exchange , or relinquishment and under sub-clause (ii) the words employed are extinguishment of any rights therein . The definition is an inclusive definition. The expression must be read widely and not narrowly. It denotes extension and cannot be treated as restricted. Transactions where under the ri .....

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was permissible, which was the normal FSI permissible as per the development control rules of the state. Besides the above, the plot of land owned by assessee and carried out additional construction, over and above the permissible FSI, can be made as the plot of land, which was capable of receiving TDR. TDR could be obtained by the developer and could be loaded on the normal FSI construction permissible as per the development control rules. The right to construct building on the said plot of la .....

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e land is not relevant. The permission to load the TDR on permissible FSI allowed by the owner is by itself a transfer of right in immovable property and therefore, clearly falls within the provision of section 45 of the Act. Therefore, we are of the considered view that in the present case before us, the sale of development rights is to be taxable as long term capital gain and not as income from other sources as held by AO. The consequential deductions/exemptions u/s. 54 of the Act etc. will be .....

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