TaxTMI 
TaxTMI 
2013 (2) TMI 177
X X X X Extracts X X X X
X X X X Extracts X X X X
....that too without giving full and proper opportunity of being heard in the matter. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in dismissing the appeal and that too without appreciating the facts and circumstances of the case fully and properly. 4. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in confirming the action of the A.O. in determining and assessing an amount of Rs. 10,70,46,274/- as capital gains income. 5. On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in holding that capital gains of Rs. 11.66 crores has accrued to the appellant society and is liable to be taxed as capital gains of the appellant society. 6. Without prejudice to ground number 5 and 6, and on the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in confirming the action of the A.O. in adopting cost of acquisition at Rs. 71 ,11,852/- for computing capital gains income. 7. On the facts and in the circumstances of the case and in law, the learned AO erred in charging interest of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Society Ltd. (v) On 17.11.2004 daughter of late Shri Dina Dady, Ms.Sillo Dady Baxter, executrix of the last will and testament of Late Smt. Dma Daddy Baxter [who was owner of remaining plot admeasuring 2348 sq. mtrs. (5715-3367)] signed an agreement with the developer, promoters of (proposed) Ariel View Co-operative Housing Society (in her capacity as executor of the last will and testament of late Dina Dady Baxter)granting full and comprehensive development rights to them in respect of the balance Plot of land admeasuring 2348 sq. mtrs. Inter alia she granted rights to utilise entire FSI and TDR as may be available on the said sub plot admeasuring 2348 sq. mtrs. to the promoters Ariel View Co-Operative Housing Society(proposed). (vi) Apprehending that the developer and Ms. Baxter will seek to develop the property by inter-alia utilizing the FSI pertaining to the plot of land admeasuring 3367 sq. mtrs. owned by the Land Breeze Co-Op. Hsg. Soc. Ltd. also, the appellant society through its members filed a writ petition (No. 2653/2005) before the Bombay High Court against the part plot owner, the developers, Shri Sanjay Kanubhai Patel and Shri Vijay Mohanlal Parekh,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ghts to the developers out of which Rs. 1,91,00,000, was received in assessment year 2007-08 and remaining amount of Rs. 1,17,00,000, was received in assessment year 2008-09. The members of the assessee-society also received a sum of Rs. 8,58,00,000, out of which Rs. 4,78,50,000, was received in A.Y. 2007-08 and Rs. 3,79,50,000 in assessment year 2008-09. In response to the show cause notice as to why the said amount was not offered for taxation, the assessee, in sum and substance, submitted that the said receipts is not taxable as it did not had any cost of acquisition, therefore, it was outside the purview of chargeability as per section 45 of the Act and provisions of section 55, cannot be invoked on such kind of transaction. In support of this, it was submitted that there are various judicial views in favour of the assessee that the amount received in transfer of TDRs is not taxable. With regard to the amount received by the members, it was reiterated that there is no ownership rights and no cost of acquisition. 6. These contentions of the assessee were not found acceptable by the Assessing Officer on the ground that the land is an asset and so are the rights attached to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... analyse the definition of "Capital Assets" as defined in sub-section (14) of section 2, that it is of embracing connotation and include every kind of property as generally understood except that which is exclusively excluded from the definition. The definition is wide enough to include all tangible or intangible assets. In support of the meaning and term of the word "Capital Assets", he relied upon catena of case laws which have been discussed from Pages-8 and 9 of the assessment order. He further held that in Shakti Insulated Wires Ltd. v. Jt. CIT [2003] 87 ITD 56 (Mum.), the Tribunal held that the property takes into its conspectuous all the rights associated with the land, which will essentially include the development rights which were duly identified by Development Control Rights, 1991. In the said decision, the Tribunal has held that the income from transfer of TDR is linked with the ownership of the land and is liable to be taxed under the head "Income From Capital Gains". He further referred to the decision of the Jurisdictional High Court in Chheda Housing Development Corporation v. Bibi Jan Shekh Farid [2007] 3 MHLJ 402 Bom., wherein it was held that transfer of developm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e developers. Consideration received by the society and the members in this regard under consent terms which are nothing but agreement towards transfer of the TDR entitlement of the society. iv. Therefore, the benefit in the form of TDR arising out of the existing land is an immovable property, the transfer of which tantamount to transfer of a long term capital asset and hence liable to be taxed as income under the head "capital gain". v. Rs. 8,58,00,000, received by the society and the members in this regard is chargeable to tax as income under the head "long term capital gain" in the hands of the assessee society in the A.Y. 2007-08." 11. Thereafter, he computed the income under "long term capital gains" after observing and holding as under:- "As stated in the preceding paragraphs the ownership of land was vested with the M/s. Land Breeze Co-op. Housing Society in consequence to execution of conveyance deed on 26.02.1979 by the land owner late Smt. Dina Daddy Baxter in favour of the society. As stated in the conveyance deed she received a consideration of Rs. 23,66,000, in this regard as her fixed share in the said project including the value of the land b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessing Officer, he gave following findings and the conclusion, which, for the sake of ready reference, are reproduced herein below:- 19. Applying the above ratio to the facts of the TDRs, unlike self generated goodwill, where it is not possible to determine the date of acquisition, in the case of TDRs the date of acquisition is clearly ascertainable, which is evidenced in the form of Development Right Certificate issued by the BMC. Further in B.C. Srinvas Setty's case, it was held that the goodwill generated in newly commenced business cannot be described as an 'asset' within the terms of section 45 of the Act. In view of the above discussion it is evident that the ratio of B.C. Srinivas Shetty is also directly not applicable to the TDRs and hence is distinguishable. As regards the case of New Shailaja CHS Ltd. v. ITO, it can be observed that the ITAT did not consider the earlier decision on this issue in the case of Shakti Insulated Wires cited supra. The judgment of the Apex Court in the case of B.C. Srinivasa Setty has also been explained by the Bombay High Court in the case of Trikamal Maneklal (HUF) 168 ITR 733 (Bom.). The Hon'ble High Court has very clearly laid down ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 48 of the Act, capital gains are to be computed by considering full value of consideration accruing as a result of transfer. The consideration of Rs. 8,58,00,000/- has accrued to the members as a result of transfer. The amount may have been paid to the members but it is the amount which accrues as a result of the transfer and but for the transfer by the assessee the members would not have received the amounts. Therefore, this amount of Rs. 8,58,00,000/- received by the members is also chargeable to tax in the hands of the assessee as consideration accruing as a result of the transfer. 23. The right has accrued to the appellant society by virtue of the amendment in development regulations of BMC. It cannot be said that there was no cost incurred for acquiring this right. It is well established through several judicial pronouncements that while acquiring land, there are a bundle of rights which are also acquired and the same may fructify in present or future also. Accordingly, in this case, the "Right" which has materialized by virtue of the original ownership of the land cannot be said to have no cost. The A.O. has rightly applied the relevant case laws that the sum of Rs. 11.6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly the grounds on which the receipt of Rs. 1166 crores is to be taxed as capital gains in the hands of the appellant society. The A.O. has given adequate reasoning and quoted relevant case laws for doing so. I agree with the reasoning and arguments given by the A.O. for making the impugned additions. Therefore, in my considered opinion, capital gains has accrued on the sum of Rs. 11.66 crores to the appellant society. The case laws cited by the appellant do not help the cause of the appellant as discussed above. Therefore, the amount of Rs. 11.66 crores is liable to be taxed as capital gains or the appellant society and the A.O. has rightly taxed the same in the hands of the appellant society. The action of the AO for doing so is accordingly confirmed. These grounds of appeal are dismissed." 13. Before us, the learned Counsel for the assessee drew our attention to the facts as was incorporated in the assessment order as well as the Commissioner (Appeals)'s order and also referred to the various document in the paper book to clarify the facts incorporated in the impugned orders. He submitted that, in fact, there is no transfer in this case but permission was given to use TDR and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansfer/assignment of TDRs can be said to be chargeable to tax under the head "Capital Gains". The concept of TDRs has been explained in several decisions of the Tribunal. As culled out from the decision relied upon by the assessee, which has been discussed in succeeding paragraphs, the concept of TDRs originates from the regulation of "Development Control Regulation of Greater Mumbai" i.e., "DCR, 1991", wherein it was provided that the owner or a lessee of a plot, which was reserved for public purpose under the development plan of DCR, would be eligible for award of compensation by way of development right certificate of equivalent Floor Space Index (FSI). In other words, the Govt. decided to grant Transferable Development Rights to the land owners, who agreed to surrender their lands on FSI for public purposes. These TDRs can be transferred to other land owners or building for constructing of the building or additional floors. The plots on which those development rights could be used were termed as "Receiving Plots" and on these plots in addition to whatever FSI were originally available to the owner or lessor of such plots, additional FSI can be allowed to the owner or lessor on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Appeals) on this score gets failed. In such a situation, computational provisions of section 48, also gets failed because no cost of acquisition can be ascribed to a right which has emanated from DCR, 1991. This issue has come up several times and has been dealt and discussed in detail by various decisions of Mumbai co-ordinate bench of the Tribunal, as have been referred to by the learned Counsel. In these cases, deep analysis of applicability of section 48, and B.C. Srinivas Setty's case (supra) has been done. For the sake of better appreciation, gist of few of them are incorporated herein below. (i) The Tribunal in Jethalal D. Mehta (supra), observed and held as follows:- "We may mention that as far Cadell Wvg. Mill Co. (P.) Ltd. case (supra) is concerned, the Special Bench decision of the Tribunal has since been reversed by the Hon'ble Bombay High Court in the judgment reported as Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 2652. Suffice to say that for this reason alone revenue's rejection of assessee's claim, by relying upon C'adell Wvg. Mill Co. (P.) Ltd.'s case (supra) is no longer sustainable in law. We need not go further into this aspect of this aspect o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urred by a third party for acquiring the TDR has nothing to do with the right to availing the said TDR on assessee's plot. Similarly, the costs of plot and costs of construction are also not the cost of acquisition of these rights. What the assessee has transferred is not the plot or the building, but a right parting with which does not result in parting with land or building. The costs of obtaining BMC approval for the building plan can also not be said to be the costs of acquisition of these rights as these rights do not arise by the virtue of getting these approvals but by the virtue of a legal right independent thereof. The law is trite, and there is no dispute on the said position, that when an asset has no cost of acquisition, the gains on sale or transfer of same cannot be brought to tax. The law laid down by the Hon'ble Supreme Court in the case of (Shri B.C. Srinivasa Setty [1981] 128 ITR 294) clearly holds so. For all these reasons, we are of the considered view that the receipts on sale of assignment of rights to receive TDR5 are not liable to tax. The authorities below erred in law and on facts in holding to the contrary. (ii) Further, the Tribunal in Maheshwar Praka....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil." Clause, (aa) and clause (ab) of section 55(2) deal with the case of shares or securities and, therefore, the same are not relevant for disposal of this appeal and, therefore, the same are not reproduced here. The perusal of section 55(2)(a) reveals that cost of acquisition is to be taken at nil in those cases where the capital asset transferred is either goodwill of business or the trademark or a brand name associated with business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hours. In the present case, the assessee is not carrying on any business and the right to construct additional floors is not covere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The assessee was the owner of the land and building and continued to remain the same even after transfer of the said capital asset. Thus, the cost of the land and building of the existing structure could not be attributed to the additional FSI received by means of 1991 Rules. It is true that such right is a capital asset as per the provisions of s. 2(14) but in order to compute capital gains apart from the existence of capital asset, there should be sale consideration accruing as a result of transfer of capital asset as well as the cost of acquisition of the asset along with the cost of any improvement thereto, if any. Sec. 48 sets out the mode of computation of income under the head capital gains by providing that the expenditure incurred wholly and exclusively in connection with the transfer of a capital asset along with the cost of acquisition and cost of any improvement, if any, shall be deducted from the full value of consideration received or accruing as a result of the transfer of capital asset. Transfer of capital asset which does not have any cost of acquisition does not result into capital gains chargeable to tax under s. 45. The legislature in its wisdom brought out cert....