TaxTMI 
TaxTMI 
2018 (6) TMI 1872
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....R is held as capital asset, the same cannot be liable to long term capital gain tax. For this assessee has raised the following grounds :- "1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the order of the Assessing Officer as regards: a) treatment of the development rights along with the right to load TDR as capital asset instead of business asset; b) assessment of sale proceeds of development rights as capital gains instead of business income. (2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the application of See. 50C of the Act to the transfer of development rights along with loading of TDR even though such rights constituted business/trading asset and not a capital asset. (3) Without prejudice to ground nos. 1 and 2. the Ld. CIT(A) has erred in adopting the Valuation report tiled by the department (through DVO) even though the objections raised by the appellant with regard to the valuation made by DVO were not correctly disposed off. (4) Without prejudice to ground nos. 1 to 3: a) the ld. CIT(A) has erred in adopt....
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....re expenses on estimated basis even though 110 items of disallowable nature were pointed by the Assessing Officer. (11) On the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs. 3,51,808/- being 20% of vehicle expenses and telephone expenses on estimated basis even though no items of disallowable nature were pointed by the Assessing Officer." 3. Briefly stated facts are that the assessee is engaged in the business of development and construction in the status of proprietary concerns in the name of K. S. Constructions and R.S. Developers. These properties concerns have purchased 30575 sq. mts of land bearing Survey No 267, Hissa No III (part) and C. T.S. No 610 (part) of Malad (East) from Mr. D.N. Ghosh and Ashiyana Construction on 7-02-1992 for Rs 1,13,00,000. The assessee disclosed this amount and paid to the sellers under the head Work in Progress (Currents Assets) in the Balance Sheet and profit on sale of the flats/shops constructed had been offered to tax on percentage completion method. The assessee enclosed copies of Balance Sheets for the year ending 31-03-1992 to 31-03-2000 to highlighting the land was treated as ....
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....ts and Shops in the Profit & Loss Account for the years ended 31-03-2007 to 31-03-2009. Due to financial constraints faced by the assessee for purchasing the required TDR for carrying on additional construction, the remaining four floors were not constructed. The said fact is highlighted on page 9 of the Agreement. The said fact was also highlighted in the agreement entered into with the individual purchasers. As per TDR rules the existing then, the recipient B2 land was entitled to 3906.48 sq. mts of TDR. As per an architect's certificate only 2400 sq. mts. of TDR out of the allowable 3905.48 sq. mts was required for construction of the balance four floors and the annexes portion. As stated, earlier due to the financial constraints, the assessee was not able to carry out and complete the development and construction on the aforesaid B2 land and was desirous of granting development rights in respect utilising the permissible TDR upon the said land to any developer for carrying and completing the scheme of construction of fourth to seventh floor of A Wing and the entire A Wing annexe. The assessee thus entered into an agreement with Midland Developers for selling his residual de....
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....ppeal, which needs to be answered, (i) Whether development rights associated with land/associated properties are capita! assets? (ii) Whether development agreement involves transfers? (iii) Whether Sec. 50c is applicable on such transfers? Whether development rights associated with land/ associated properties are capital assets? 5.2 Capital assets' as defined in tub-section (14) of Section 2 of Income Tax means Property' of any kind held by the assessee whether or not connected with his business or profession. It excludes certain assets such as agricultural land, stock in trade, personal effects etc. which are specifically mentioned in the provision. The definition is wide enough to include all tangible or intangible assets which are definable and identifiable, which have value and which can be owned/ transferred. It also includes aggregate of rights which carry value and which can either be exploited or transferred to other. Hon'ble Bombay High Court in the case of Commissioner of Income tax vs. Vijay Flexible Containers 186 ITR 693 (Bom.) has held that the right to obtain conveyance of immovable property is a capital asset So is wit....
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....CHS Ltd.(ITA No. 1475/M/07 - A.Y. 2003-04) and it was held that development rights are capital assets having cost of acquisition. 5.5 The appellant has relied upon the judgments in the cases of Jethalal D Mehta vs DCIT (2005] 2 SOT 422 [Mum], Lotia Court Co-operative Housing Society Ltd. (20081 12 DTR [Mum] 396 and New Shailaja CHS vs ITO 36 SOT 19 [2010] [Mum). In the case of Jethalal D Mehta vs DCIT (supra) and other cited cases, Hon'ble ITAT, Mumbai has held that such rights are not capital assets on the ground that there is no cost of acquisition of such rights and as per the ration of the decision of the Hon'ble Supreme Court in CIT vs B C Srinivas Setty (1981) 128 ITR 294. In the fact of these cases, the transfer envisaged was only of TDR FSI and the assessee's entitlement to load these TDR on these lands. The Hon'bIe ITAT therefore considered the issue on these facts only. 5.6 However, the decisions in the preceding paragraphs are not applicable to the fact of the instant case as the original FSI on the aforesaid B2 land was transferred to MIs Midland Developers for development and construction of fourth to seventh floor of A Wing and the en....
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.... The entire FSI which was 1:1 was utilized by the assessee. The profit was accounted for by the assessee on percentage computation method. Out of the total land that was purchased by the assessee he had to surrender 1277.30 sq meter of land to the Municipal Corporation of Greater Mumbai for road. For this the assessee was granted additional FSI which could be used by purchase of Transferable Development Right. But the assessee had huge debts and did not have resources to purchase the TDR and therefore it was sold to another developer for a sum of Rs. 2,20,20,000/-. The assessee was a builder and developer. The land purchased by the assessee was stock-in-trade. Consequently, the FSI that allowed and used was also his stock-in-trade. Hence, the additional FSI for which the permission was given by MCGM was also stock-in-trade only. Accordingly, this FSI was sold and additional FSI sold for was accounted for as business income. But the AO treated the same as a capital asset and the sale proceed was considered as Income from Capital Gains. Since, it was treated as capital gains he also invoked the provisions of section 50C of the Act. The AO took the value determined by the stamp duty a....
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....tock-in trade only. Neither the land nor the residual right by way of Transferable Development Right can have any other character other than a business asset and it cannot be treated as capital asset. 10. Here, we want to refer the decision of Hon'ble Bombay High Court in the case of CIT vs. Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 246 Taxman 274 (Bombay) wherein, it is held that since the plot was kept as stock in trade, the provisions of section 50C of the Act will not apply. The Hon'ble Bombay High Court held as under :- "(f) It is self evident from reading of section 50C of the Act that it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application is only limited to computation of income chargeable under the head 'Capital gains' as is evident from specific reference in sub-section (1) of section 50 of the Act to section 48 of the Act i.e. mode of computation of capital gains. In fact section 50C of the Act as observed by the impugned order is placed as part of the Chapter IV-E under the head 'capital gains', it can only govern the valuation of the property ....
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....y and time-consuming. In order to minimize the time needed and to enable a process, which could be advantageously put into practice to acquire land for reservation purposes, the concept of TDR comes in handy. In this context, another note-worthy aspect is whether Development Rights Certificate (DRC) is transferable / inheritable. As already stated, if the owner of any land which is required for road widening or development of parks, playgrounds, civic amenities, etc, such land shall be eligible for the award of Transferable Development Rights (TDRs). Such award will entitle the owner of the land, rights in the form of Development Rights Certificate (DRC), which he may use for himself for transfer to any other person. Accordingly, it will be appropriate to refer to the Development Control Regulations, 1991, Greater Bombay. Rule 34 of the aforesaid regulations defines TDR, which stands for Transferable Development Rights. As per rule 34, in certain circumstances, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of the land in the form of TDRs. Whether the receipt on transfer/sale of TDRs is liable to capital gain....
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....ction 55(2)(a) of the Act, which are reproduced as follows : "55. Meaning of "adjusted", "cost of improvement" and "cost of acquisition". (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, 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 ;" 13. From the aforesaid provisions of section 55(2)(a) of the Act, it may be seen that the same do not include Transferable Development Rights (TDRs). Therefore, the sale of TDR will not be liable to capital gains tax. The case law of Hon'ble Bombay High Court in the case of CIT Vs Sambhaji Nagar Co-op. Hsg. Society Ltd. [2015] 370 ITR 325 (Bom.) support the view that there will be no capital gains tax on transfer/s....