TaxTMI 
TaxTMI 
2008 (5) TMI 455
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....ction on this plot of land. However, the Municipal Corporation relaxed the development regulations in the year 1991 and on that account additional TDR FSI was allowed under the Development Control Regulation, 1991 (DCR). Thus, the assessee became entitled to construct additional space of 15,000 sq. ft. In view of the availability of such right, the assessee entered into an agreement with M/s. U.S. Magnet Pvt. Ltd. and M/s. Spartek Properties and Securities Pvt. Ltd. on 25-11-2002 for construction of additional floors on the existing structure of the society building and development of the said property against a consideration of Rs. 280 per sq. ft. which amounted to Rs. 42 lakhs. Under this agreement, Transferable Development Right (TDR) was to be arranged by the developers at their own cost. In the course of assessment proceedings, it was noticed by the Assessing Officer that the above amount received by the assessee under the agreement had not been offered as income in the return filed for the year under consideration. Accordingly a show-cause notice was issued to the assessee to explain as to why this amount should not be taxed under the head 'Long term capital gain' since the a....
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...., of the area which could not affect the accrual of income; (iii) that act of permitting the developer to construct additional floors amounted to enjoyment of the property and, therefore, provisions of section 2(47)( v) applied; (iv) since the assessee had surrendered its right to the developer against the consideration, the income accrued to the assessee in the year under consideration. Accordingly, he assessed the entire sum of Rs. 42 lakhs as long-term capital gain since right to construct was embedded in the land which was held by the assessee for more than three years. 6. The matter was carried in appeal before the CIT(A) before whom it was reiterated that no capital gain arose to the assessee in view of the Hon'ble Supreme Court judgment in the case of CIT v. B.C. Shrinivasa Shetty [1981] 128 ITR 294^1 inasmuch as there was no cost of acquisition. The CIT(A) rejected the contention of the assessee. According to him, the assessee had acquired the right to construct the additional area which had been transferred for a consideration. It was also observed by him that such right was part of the bundle of rights which the assessee had acquired at the time of acquisition of origi....
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....e obtained such right. Therefore, it cannot be said that there was no cost of acquisition. Reliance was also placed by him on the decision of Bombay High Court in the case of CIT v. Trikamul Maniklal [1987] 168 ITR 733 and decision of the Tribunal in the case of Jaykumar B. Patil v. Dy. CIT [2007] 290 ITR (AT) 163 (Pune) and Vijaysingh Rathore v. ITO [2007] 106 ITD 153 (Ahd.) (SB). 8. Rival submissions of the parties have been considered carefully in the light of material placed before us as well as case-law referred to. In order to resolve the controversy between the parties, it would be appropriate to refer to the relevant provisions of DCR, 1991. Prior to the year 1991, the FSI available for construction of the building was 1.33 for Mumbai city while 1.0 for suburbs. The development in the island city had reached the saturation point and there was no scope for further development. However, some lands belonging to the private parties fell within the reserved area notified by the Bombay Municipal Corporation (BMC) for development of parks, roads and other public amenities. The acquisition proceedings were taking too much time because of the litigation between the land owners an....
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.... the said land is surrendered free of cost as stipulated in Regulation 5 in this Appendix, and after completion of development or construction as in Regulation in this Appendix if he undertakes the same. 3. Development Rights (DRs) will be granted to an owner or a lessee only for reserved lands which are retainable/non-retainable under the Urban Land (Ceiling and Regulations) Act, 1976, and in respect of all other reserved, lands to which the provisions of the aforesaid Act do not apply, and on production of a certificate to this effect from the Competent Authority under that Act before a Development Right is granted. In the case of non-retainable lands, the grant of Development Rights shall be to such extent and subject to such conditions as Government may specify. Development Rights (DRs) are available only in case where development of a reservation has not been implemented i.e., TDRs will be available only for prospective development of reservations." Regulation No. 4 permits the Commissioner to issue Development Rights Certificate (DRC). Such rights have been made transferable but such transfer has to be endorsed by the Commissioner as per Regulation 8. Regulation 10 prov....
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....thout loading the TDR on the receiving plot. The above discussion shows that two separate and distinct rights arose as per DCR, 1991 i.e., TDR and the right to construct additional floor. The former has inbuilt cost while the later one arose without any cost. Regulation 14 makes it clear that FSI of receiving plot shall be allowed to be excluded in the prescribed manner. Such right was made available automatically without paying anything either to BMC or to the Government. 10. In view of the above discussion, let us now deal with the contentions raised by learned counsel for the assessee. Section 45 of the Act is the charging section in respect of profits or gains arising from the transfer of capital asset. The expression 'capital asset' has been defined in clause (14 ) of section 2 of the Act according to which 'capital asset' means property of any kind held by an assessee whether or not connected with the business or profession. It excludes certain assets from the scope of the above definition with which we are not concerned. The word 'property' not only includes tangible assets but also includes intangible assets as held by the Hon'ble Supreme Court in the case of B.C. Shrini....
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.... the valuable right of availing additional floor space index through transfer development rights. Accordingly he entered into an arrangement with a developer who used TDR on assessee's flat to avail additional FSI against such consideration. The question arose whether the assessee could be chargeable to tax under section 45 of the Act in respect of the consideration received by him. The contention of the assessee before the authorities was that there was no cost of acquisition of the right obtained by him and therefore, the capital gain could not be computed in view of the Hon'ble Supreme Court judgment in the case of B.C. Shrinivasa Shetty (supra). The lower authorities did not accept such contention. However, the Tribunal upheld the contention of the assessee by holding that right to construct the additional floors under the Development Control Regulation, 1991 was acquired without incurring any cost and therefore, assessee was not chargeable to tax in respect of such receipts in view of the aforesaid Hon'ble Supreme Court judgment. The facts of the present case are similar to the aforesaid case and therefore, the said decision would squarely apply to the present case. Even as a ....
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....respect of such right. We are unable to accept such contention of the learned DR for two reasons. Firstly, because it is not the case of the Assessing Officer or the CIT(A) since the cost of acquisition was taken by them as nil as per the amended provisions. Secondly, because the theory of spreading over the cost of original share over the original shares and bonus shares was based on the fact that bonus shares were issued to the detriment of the original shares as held by the Hon'ble Supreme Court in the case of CIT v. Dalmiya Investment Co. [1964] 52 ITR 567 . In that case, it was held that by issue of bonus shares the price of original shares had declined in the market and, therefore, it could not be said that acquisition of bonus shares was without cost. However, in the present case, the right to construct attached with the land on the date of purchase of land had already been exhausted by construction of flats prior to 1991 as per the FSI available according to law as it was in force. Therefore, there was no further right to construct any flat on that land. It was because of DCR, 1991 that additional right accrued to the assessee which was distinct and separate from the origin....
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....ares at the time of acquisition by the assessee - Hindu undivided family is to be taken as the cost thereof to the assessee for the purpose of computation of the capital gains?" Before the High Court, the assessee took the stand that capital gains was not at all chargeable to tax. This contention was rejected by the Court on the ground that such question did not fall within the scope of the question referred to. So their Lordships proceeded to answer the question whether fair market value on the date of receipt of shares by assessee could be taken as cost of acquisition of shares. Their Lordships were of the view that where the transaction does not fall either under section 49 or under section 55(2), the cost of the acquisition should be either the actual expenditure or nil where nothing is paid by assessee. At page 737 of the report, it was stated that the view taken by them was fortified by the decision of the Apex Court in the case of B.C. Shrinivasa Shetty (supra). It was observed that, as per the ratio of the judgment of the Apex Court, section 45 contemplated an asset in the acquisition of which it was possible to envisage a cost considering the nature and character of the....
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....mined in accordance with those provisions. There are other provisions which indicate that section 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-section (2) of section 55. None of the provisions pertaining to the head 'Capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet here are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what, is charged is the capital value of the asset and not any profit or gain." The perusal of the above para clearly shows that their Lordships laid down the test to ascertain the asset which could be included or excluded from the ambit of section 45 of the Act. If the asset is such in acquisition of which it is possible to envisage a cost then it would be within the ambit of section 45. The test applied by their Lordships was t....