2013 (11) TMI 1714 - AT - Income Tax

ITAT Mumbai Affirms Capital Gains Tax on Development Rights Transfer; Allows Sec 54 Exemption for Multiple Flats as One House.

The ITAT Mumbai upheld the Ld.CIT(A)'s decision, affirming the taxability of capital gains arising from the transfer of development rights and granting ... Transfer attracting capital gains - assignment and transfer of development rights / additional FSI - pro-rata allocation of cost of acquisition to FSI - exemption under section 54 - residential flats constituting 'a residential house'Transfer attracting capital gains - assignment and transfer of development rights / additional FSI - pro-rata allocation of cost of acquisition to FSI - Whether grant/assignment of development rights and the consequent sale of flats by the developer amounted to a transfer giving rise to capital gains and whether the cost of acquisition attributable to the additional FSI must be determined on a pro-rata basis. - HELD THAT: - The Tribunal concurred with the CIT(A) and AO that the development agreement conferred upon the developer the right to sell flats created by additional FSI (loading of TDR), and those flats were sold to third parties with possession. To that extent rights, title and interest in the plot (including genesis of existing and additional FSI) stood transferred, bringing the transaction within the ambit of transfer under the Capital Gains provisions and the Transfer of Property Act. In the context of construction, the cost attributable to the FSI assigned or transferred must be determined on a pro-rata basis having regard to the cost of acquisition of the plot, as adopted by the authorities below. The Tribunal found no infirmity in the conclusions of the authorities below and decided the issue against the assessee. [Paras 4]Transaction held to be a transfer attracting capital gains; cost of acquisition attributable to FSI to be allocated pro-rata; issue decided against the assessee.Exemption under section 54 - residential flats constituting 'a residential house' - Whether the assessee was entitled to exemption under section 54 in respect of the cost/construction of the three flats (9th, 10th and 11th floors) held and used as his residential accommodation. - HELD THAT: - The Tribunal upheld the CIT(A)'s allowance of exemption under section 54, rejecting the Revenue's contention. The CIT(A) relied on judicial authorities holding that a building of residential nature comprising several independent units in the same building/floor structure can be treated as 'a residential house' for the purposes of section 54, and that multiple independent units in the same building do not necessarily defeat the exemption. The Tribunal noted the distinction from decisions concerning independent houses at different locations and observed that consistent High Court decisions permit grant of exemption where the new residential accommodation consists of independent units within the same building. Applying these principles to the facts, the Tribunal found no reason to interfere with the allowance of exemption by the CIT(A). [Paras 5]Exemption under section 54 allowed in respect of the flats on 9th-11th floors; Revenue's appeal on this point dismissed.Final Conclusion: The Tribunal dismissed both the assessee's and the Revenue's cross-appeals: the transfer was held to attract capital gains with cost attributable to FSI to be allocated pro-rata (decision against the assessee), and the CIT(A)'s allowance of exemption under section 54 for the residential flats in the same building was upheld (decision for the assessee). Issues involved: The judgment involves issues related to taxability of capital gains and exemption claimed u/s 54 of the Income Tax Act for the Assessment Year 2005-06.Taxability of Capital Gains: The assessee, an individual, inherited a property and entered into a development agreement for construction. The AO held that capital gains arose from the grant of development rights, leading to a transfer attracting capital gain provisions. The Ld.CIT(A) upheld this decision but allowed exemption u/s 54 for the cost of construction of certain floors. The ITAT concurred with the Ld.CIT(A) that the transfer of property occurred when the developer sold flats on the land, and upheld the decision against the assessee.Exemption u/s 54 of the Act: The Revenue challenged the Ld.CIT(A)'s decision to allow exemption u/s 54 for the cost of construction of certain floors. The Ld.CIT(A) relied on precedents to support the assessee's claim that multiple flats in the same building can be considered as one residential house for exemption purposes. The ITAT upheld the Ld.CIT(A)'s decision, citing consistent views of different High Courts, and dismissed both the assessee's and Revenue's appeals.In conclusion, the ITAT Mumbai upheld the Ld.CIT(A)'s decision on both issues, dismissing the appeals filed by the assessee and the Revenue.