TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 948
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is a Co-operative Housing Society with 57 members. It had not filed any return of income for the Asst Year 2011-12. The PAN of the assessee is allotted in the status of "Association of Persons‟ (AOP). The ld AO observed that pursuant to the information received from the Director of income Tax (Intelligence & Criminal Investigation), the case of the assessee was reopened by issuance of notice u/s 148 of the Act on 30.8.2013 after recording the following reasons :- "Information had been received from the Director of Income- Tax (Intelligence & Cr. Inv), Mumbai that assessee development agreement had taken place between State Bank of India staff "Vaibhav" CHS Ltd and M/s Ahura Developers Pvt Ltd. It is observed from the agreement executed on 4.11.2010 that the State Bank of India staff "Vaibhav" CHS Ltd who is the owner of all that piece & Parcel of free land and ground along with 57 Bungalows standing thereon bearing survey No 216, Hissa No 1(pt) & 47(pt) corresponding CTS NO 1877 to 1880, 1880/ 1 to 4 total admeasuring 29,889/- Sq. Mts in Borivali. By the terms of agreement, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on for re-development of the society property. The Society vide Agreement dated 13.10.2010 entered into a Development Agreement with M/s Ahura Developers Pvt Ltd , whereby the Society authorized the Developer to demolish the said Bungalows and reconstruct a Tower. As per the Development Agreement, the Developer agreed to pay Rs. 50 lakhs as Corpus Fund to the Society and Rs. 40 lakhs to each member of the Society on vacating and handing over their Bungalow to the Developer. The Development Agreement was approved by the 2/3rd majority of the members of the Society. This Development Agreement dated 13.10.2010 was registered on 14.10.2010 by the Developer and the latter paid the stamp duty of Rs. 1,73,47,750/-. The Stamp duty valuation of the property of the Society comes to Rs. 34,69,55,000/-. As per Development Agreement, the Society authorized the Developer to demolish the said old Bungalow and reconstruct the new proposed building after utilizing the entire Floor Space Index (FSI) of the said property as well as maximum permissible Transferable Development Rights (TDR) FSI in respect of the said property. The payment of Rs. 40 lakhs to the member was revised to Rs. 52 lakhs beside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh the development rights have been granted to the developer under the said agreement, even as on today the possession of the property has not been handed over fully to the developer for the reason interalia that some of the members have not vacated their respective premises. It may be appreciated that para 1.4 of the development agreement very logically and rightly provides that the developer will carry out development of the property by demolishing, bunglows/ structures '''standing on the said property. Since the bungalows and structures have not been vacated therefore, presently neither demolition is possible nor development is possible nor the development is possible." 4. The ld AO observed that the contention of the assessee society is not acceptable for the reason that the assessee was owner of the capital assets. He placed reliance on the development agreement which provided that Developer is entitled to construct new building by utilizing the entire FSI available to the said land arising from redevelopment. From this he observed that it is thus clear that rights and benefits available to the said land has been transferred to the developer for an agreed consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ety that nothing has been transferred to the Developer. The assessee placed reliance on the co-ordinate bench decision of Mumbai Tribunal in th ecaes of Bhatia Nagar Premises Co-operative Society Ltd vs ITO reported in (2013) 59 SOT 134 (Mumbai) wherein it was held that property can be held to be transferred under a Development Agreement only when possession is handed over to the Developer and not on the agreement date, when only a small portion of consideration was received. 5.2. The assessee further pleaded that in respect of "Consideration received by the Society from Developer‟, the ld AO went on to add every benefit which will be accrued to anyone will be treated as income in the hands of the society. It was again pleaded that there was no transfer of a capital asset by the assessee society. 5.3. The assessee pleaded further that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "capital gains‟ as opposed to assets in the acquisition of which no cost at all can be conceived. Reliance in this regard was placed on the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Sambhaji N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be the property of the appellant .society and what the developer gets is only additional FSI which is available as per the development control regulations 1991, Further the developer will get such additional FSI only upon happening of certain events which had not taken place till the finalization of assessment. Thus prima facie there does not seem to be any transfer of capital asset. 3.9 Having said that, suppose for argument's sake it is assumed that there is a transfer of capital asset which is of the nature of additional FSI. In this situation how will the capital gain be computed. The AO has simply taken the value adopted by the Stamp Duty authorities as the full value of consideration. The full value of consideration is a kind of gross receipt which cannot be equated to capital gain. Any capital gain has to be computed in accordance with the provisions of section 48 and 49 of the IT Act 1961. In other words, capital gain has to be computed by making a reference to the cost of acquisition. In the assessment order the AO has not even attempted to compute the long term capital gain and has taken the full value of consideration itself as equivalent to long term capital gain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isition, which had been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. Additional floor space index/ transferable development right was generated by change in the Development Control Rules, 1991. A specific insertion would, therefore, be necessary so as to ascertain its cost for computing the capital gains. Therefore, the transferable development right which was generated by the property and was transferred under a document in favour of the purchaser would not result in the gains being assessed to capital gains. The Tribunal concluded that what the assessee sold was transferable development right received as additional floor space index as per the 1991 Rules. It was not a case of a sale of development rights already embedded in the land acquired and owned by the assessee. The Tribunal found that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible for additional floor space index. The land and the building earlier in the possession of the assessee continued to remain with it. Even after the transfer of the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or no cost of acquisition has been incurred. The items of capital assets specified in S. 55(2) are those for which the cost of acquisition shall be taken at Rs. Nil for computing capital gains. However, if the assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in s. 55(2) then no capital gain would be charged. It is abundantly clear that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible to additional FSI. The land and building earlier in the possession of the assessee continued to remain with it as such even after the transfer of the right to additional FSI for Rs. 48.96 lakhs. The Departmental Representative could not point out any particular asset as specified in sub-s. (2) of s. 55, which would include the right to additional FSI. No capital gains could be charged on the transfer of the additional FSI by the assessee for sale consideration of Rs. 48.96 lakhs the reason that it has no cost of acquisition. 3.10 On similar facts same view has been expressed by the jurisdictional Mumbai ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the developer has not even purchased the FS1/TDR as required for redevelopment of the society. 3.14 The AO had relied in his order on the decision of Bombay High Court given in the case of Chatturbhuj Das Kapadia 260 ITR 491. owever, this case is distinguishable on facts and law because the issue this case was regarding the year in which the capital gain was d the effect of insertion of clause v and clause vi in section 2(47) wef .04.1998. In the present case the decision of Mumbai High Court which has come much later is more relevant. On the basis of the above discussions and after considering the totality of facts and principles of law I have come to a conclusion that there is no incidence of capital gain in the hands of the appellant society. Grounds of appeal no. 2,3,4,5 are allowed and consequently addition of Rs. 34,69,55,000/- stands deleted." 7. Aggrieved, the revenue is in appeal before us. 8. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of a) Deed of Confirmation - cum - Supplemental Agreement dated 5.7.2014 (enclosed in pages 1 to 52 of Paper Book) ; b) Supplement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et be treated as Nil in view of the provisions of section 55(2) of the Act ? c) If both the conditions stated above does not prevail, then can there be any relevance to applicability of provsions of section 50C of the Act? 8.2. It would be relevant to get into the definition of "transfer‟ as per section 2(47) of the Act which is reproduced as under:- (47) "transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operativ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erted by the revenue before us. Accordingly, there cannot be any incidence of capital gains. Hence the answer to question no. a) raised hereinabove, is decided in favour of the assessee. 8.3. The provisions of section 55(2) of the Act states as under:- "55(2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business or profession, 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 ; (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all be higher of- (i) the cost of acquisition of such asset; and (ii) lower of- (A) the fair market value of such asset; and (B) the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation.-For the purposes of this clause,- (a) "fair market value" means,- (i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st day of January, 2018, the highest price of the capital asset quoted on such exchange on the said date: Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; (ii) in a case where the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st day of January, 2018, the net asset value of such unit as on the said date; (iii) in a case where the capital asset is an equity share in a company which is- (A) not listed on a recognised stock exchange as on the 31st day of Janu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company into shares of smaller amount, or (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived." In the case of the assessee, what is transferred is none of the above items. 8.3.1. We find that even if the property is not transferred, then there is a right created by the "Land Development Control Rules, 1991" attached with the land embedded in it. No detriment is created to cost of land by granting transfer of such rights. There is no element of cost in acquiring such right which had been transferred. Hence if there is no cost, there cannot be any element of capital gains. Reliance in this regard is placed on the decision of the co-ordinate bench of this tribunal in the case of Maheswar Prakash -2 Co-operative Housing Society Ltd vs ITO reported in 118 ITD 223 (Mum Trib) dated 15.5.2008 wherein the head notes are as under:- "Capital gains-Chargeability-Sale of additional FSI or right to construct additional floor-Bombay Municipal Corporation (BMC), in 1991, relaxed the Development Control Regulati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hereof was capital receipt and could not be charged to tax as capital gains. Respectfully following the said decision, the question no. b) raised hereinabove is decided in favour of the assessee. 8.4. Since both the questions raised hereinabove are decided in favour of the assessee, the question of applicability of provisions of section 50C of the Act to the same does not arise at all. In any case, the provisions of section 50C of the Act can be applied only for transfer of land or building or both and not for "Rights in Development Agreement‟. Reliance in this regard has been rightly placed on the co-ordinate bench of this tribunal in the case of Voltas Ltd vs ITO in ITA Nos. 5330 , 5331 and 5320/Mum/2009 for Asst Year 2005-06 dated 16.9.2016 wherein it was held that :- 3.6. Lastly, it was submitted without prejudice to the above submissions that in any case transaction of sale of Development Rights is not covered u/s 50C. In support of this argument, Ld. Counsel drew our attention on other allied provisions of the Act such as section 269A of the Act. Ld Counsel vehemently argued that on this ground itself addition made by the AO becomes illegal and deserves to be dele....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... building' and 'rights therein' have been clearly understood and treated as independent from each other. Thus, the perusal of the definitions given in these sections when compared with section 50C shows that legislature was conscious about the proper expression to be used as per its intention, scope, object and purpose of the section 50C, wherein it has been expressly mentioned that capital asset should be 'land or building or both'. It has not been mentioned that any type of 'rights' shall also be included in the definition of capital assets to be transferred by an assessee. 3.11. The provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, while 12 Voltas Ltd. interpreting deeming provisions neither any words can be added nor deleted from language used expressly. We should apply the 'Rule of Strict Interpretation' as well as 'Rule of Literal Construction' while understanding the meaning and scope of deeming provisions. In our opinion, under the given facts and circumstances, Ld. Counsel has rightly contended that since the i....