Skyline Greathills Vs DCIT (ITAT Mumbai)
The cross-appeals arose from the CIT(A) order dated 27.03.2025 for AY 2019-20 concerning the tax treatment of gains from transfer of a property. The Revenue challenged the CIT(A)’s finding that the Rs.480 crore gain was taxable under “Capital Gains” rather than “Profits and Gains of Business or Profession”. The assessee challenged various disallowances and, through additional grounds, claimed that the receipt itself was a non-taxable capital receipt.
The assessee had acquired leasehold and development rights over approximately 32,262.79 square metres and entered into a Joint Development Agreement (JDA) with Skyline Mansions Pvt. Ltd. (SMPL) in 2008. The project could not proceed for almost a decade due to environmental clearance issues, encroachments, municipal complaints, lender disputes and other regulatory impediments. The assessee had no contractual right to terminate the JDA, leaving its development rights commercially unexploited during this period. The JDA was terminated on 17.09.2018, following which SMPL transferred its reversionary rights to the assessee for Rs.109 crore. On 18.09.2018, the assessee transferred 25,887 square metres to M/s Kanakia Spaces Realty Pvt. Ltd. for Rs.480 crore.
The assessee initially declared the surplus as business income but alternatively contended that the prolonged and involuntary sterilisation of its commercial rights justified capital gains treatment. The CIT(A) accepted this alternative contention. The ITAT admitted the assessee’s additional grounds concerning treatment of the receipt as a capital receipt, relying on National Thermal Power Co. Ltd. v. CIT. However, it rejected those grounds, holding that the assessee did not receive compensation for destruction or extinction of its profit-making apparatus. According to the Tribunal, the rights were restored upon termination of the JDA, subsequently consolidated through acquisition of the reversionary rights, and voluntarily transferred to the purchaser. The receipt therefore did not fall outside the charging provisions.
