Tribunal Rules FSI Sale as Capital Receipt, Excludes Rs. 4.76 Crore from Book Profits; Section 115JB Still Applies.

The Tribunal partly allowed the appeal, determining that the sum of Rs. 4,76,25,000 received from the sale of FSI is not taxable under normal provisions as it is a capital receipt. It directed the exclusion of this sum from book profits under Section 115JB. However, the Tribunal upheld the applicability of Section 115JB to the assessee company, requiring tax based on book profits despite no tax liability under normal provisions.

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Issues Involved:
1. Taxability of the sum received on the sale of Floor Space Index (FSI) under normal provisions of the Income Tax Act, 1961.
2. Inclusion of the sum received on the sale of FSI in the computation of book profits under Section 115JB of the Income Tax Act, 1961.
3. Applicability of provisions of Section 115JB of the Income Tax Act, 1961 to the assessee company.

Detailed Analysis:

Issue 1: Taxability of the sum received on the sale of FSI under normal provisions of the Income Tax Act, 1961
The primary issue was whether the sum of Rs. 4,76,25,000 received on the sale of FSI should be treated as income from Long Term Capital Gains. The assessee argued that this amount was a capital receipt and hence not taxable. The Assessing Officer (AO) contended that FSI is inseparable from the land and building, thus treating the receipt as long-term capital gains. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, distinguishing it from the case of CIT vs. Sambhaji Nagar Co-op Housing Society Ltd., where TDR was sold separately. The Tribunal, however, noted that the assessee did not incur any cost for obtaining the additional FSI, which was a windfall gain due to changes in Development Control Regulation Rules. Citing the Hon’ble Jurisdictional High Court's decision in Kailash Jyoti No.2 CHS Ltd., the Tribunal concluded that the sum received for the additional FSI is not exigible to tax as long-term capital gains under normal provisions of the Act.

Issue 2: Inclusion of the sum received on the sale of FSI in the computation of book profits under Section 115JB of the Income Tax Act, 1961
The assessee had included the sum of Rs. 4,76,25,000 in its book profits under Section 115JB. The Tribunal noted that this receipt is indeed a capital receipt and does not form part of the operational working results of the company. It held that a capital receipt, even if voluntarily offered to tax by the assessee, cannot be brought to tax under Section 115JB. The Tribunal referenced its own decision in the assessee’s case for A.Y.2011-12 and the Hon’ble Calcutta High Court's ruling in PCIT vs. Ankit Metal and Power Ltd., which stated that non-income receipts cannot be included in book profits under Section 115JB. Consequently, the Tribunal directed the exclusion of Rs. 4,76,25,000 from the computation of book profits under Section 115JB.

Issue 3: Applicability of provisions of Section 115JB of the Income Tax Act, 1961 to the assessee company
The assessee challenged the applicability of Section 115JB, arguing that it should not apply since there was no tax payable under normal provisions due to a loss. The Tribunal referred to its earlier decision in the assessee’s case for A.Y.2011-12, which upheld the applicability of Section 115JB, emphasizing that these provisions are intended to collect tax based on book profits when normal provisions result in zero tax. The Tribunal rejected the argument that Section 115JB should not apply to the assessee and dismissed the ground.

Conclusion:
The Tribunal partly allowed the appeal, ruling that the sum of Rs. 4,76,25,000 received on the sale of FSI is not taxable under normal provisions as it is a capital receipt. It also directed the exclusion of this sum from the computation of book profits under Section 115JB. However, the Tribunal upheld the applicability of Section 115JB to the assessee company.

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