Grant of redevelopment rights on a property amounts to transfer of property, and gives rise to capital gains, liable to tax and provisions of Sec 50C are invokable in such a case

The owners granting the right, authority and power to develop the property in favour of the developers is considered as transfer of the land and building and thus liable to capital gain tax and section 50C of the Act is applicable

Recently ITAT Mumbai held that in the case of Chiranjeev Lal Khanna Vs. ITO (ITA No. 6170/Mum/2008) held that considering the facts of the case and clauses in the agreement, the taxpayer has transferred land and building to the developer would be chargeable to tax as capital gains. Accordingly, Section 50C of the Income-tax Act, 196 1(the Act) would be applicable.

Facts of the case

• The taxpayer and his wife jointly owned building along with plot of land ad measuring 840 sq.mts. i.e. 1,005 sq.yards. The owners entered into agreement with the developers to demolish the existing building and redevelop the said land into a new building on 50 percent sharing basis based on the terms and conditions set out in the agreement.
• As per the agreement, the plot of land will continue to be owned by the owners and developers have no right and title over it. The owners would retain FSI of 11,835 sq.ft granted to them by Municipal Corporation and the developer would load their sources of FSI and construct the total area.
• The owners have agreed to pay the developers costs of construction of FSI retained by owners at INR 1000 per sq.ft. as per the agreement.
• A sum of INR 21.83 million was received by the owners (including the taxpayer) from developers in consideration of the owners granting in favour of the developers the right, authority and power to develop the said property.
• In the return of income the taxpayer has computed the net capital gains arisen to the taxpayer on account of transfer of taxpayer’s 50 percent share by virtue of development agreement as nil after claiming deduction under Section 54 and 54F of the Act.
• During the course of assessment proceedings, the Assessing Officer (AO) has also raised a query whether the consideration received can be considered as income from other sources. However, ultimately, the AO recomputed the capital gains after considering the market value, as worked by Registration Authority for stamp duty valuation, of the property at INR 38.25 million under Section 50C of the Act.

Taxpayer’s contentions

• Before the AO and Commissioner of Income Tax (Appeals) the taxpayer contended that the right of ownership of plot of land continued to be with the taxpayer.
• On query from the AO that why the consideration received from the developer should not be treated as income from other sources, , the taxpayer contended that there is in fact transfer of right, title and interest in the plot of land. He ceases to be the single holder of right, title and interest therein. He, along with the purchaser of the flats in the new building would become joint interest holders. Accordingly, there is a transfer of capital asset which is exigible to capital gain tax.
• The taxpayer also contended that development rights on land and
  building do not come under the purview of Section 50C of the Act.
• Before the Tribunal the taxpayer relied on various judicial precedents(Refer Note -1 for list) and contended that the transaction was not liable to tax as capital gains as per the provisions of the Act. The taxpayer also contested the applicability of Section 50C of the Act to the said transaction.

Tax department’s contentions

• Referring to the various decisions relied by the taxpayer, the tax department submitted that in all those cases, the existing building was not demolished and only further construction/modifications were done to the existing building.
• The developer is entitled to demolish the building and the debris and other building material of the demolished building will belong to the developer as the consideration thereof is included in the aforesaid consideration. Thus, the entire building has been transferred.
• The documents have been registered by the State Registration Authorities; therefore, the AO had no other option but to apply provisions of Section 50C of the Act.
• It is a clear transfer of capital asset falling under the provisions of Section 50C of the Act.

Our comments

The Tribunal while distinguishing New Shailaja Co-op Hsg. Society’s decision has observed that in the instant case there is a transfer of existing land and building as it was demolished by the developer for fresh construction.

This observation of the Tribunal needs reconsideration as the chargeability of transfer of additional TDR granted under Development Control Rules 1991 should not solely be dependent on the demolition of existing structure or not.

Note – 1

Jethalal D Mehta v. DCIT [2005] 2 SOT 422 (Mum), Maheswar Prakash Co-op Hsg. Soc. Ltd. v. ITO [2009] 121 TTJ 641 (Mum), ITO v. Lotia Court Co-op Hsg. Soc. Ltd. [2008] 118 TTJ 199 (Mum), New Shailaja Co-op Hsg. Soc. Ltd. v. ITO 121 TTJ 62 (Mum), Amber Croft Co-op Hsg. Soc. Ltd. (ITA No.5697/Mum/06), Om Shanti Co-op Hsg. Soc. Ltd. v. ITO (ITA No.2550/Mum/08), ITO v. Shri Ram Kumar Malhotra (2010-TIOL -512- Mum).

FULL TEXT OF THE CASE IS AS FOLLOWS:-

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI ‘C ‘ BENCH

MUMBAI BENCHES, MUMBAI

BEFORE SHRI R V EASWAR, PRESIDENT & SHRI R K PANDA, AM

ITA No. 6170/Mum/2008

(Asst Year 2005-06)

Chiranjeev Lal KhannaPlot No.8 X Road, No.4 Greater Mumbai Housing Soc. Juhu, Mumbai 49 Appellant

Vs

The Income Tax OfficerWard 11(2)(2), Mumbai (Respondent)

PAN NO.AABPK3888K

Assessee by Shri S C Tiwari

Revenue by Shri P N Devdasan-DR

PER R K PANDA, AM

This appeal filed by the assessee is directed against the order dated 21.8.2008 of the CIT(A) XI, Mumbai relating to AY 2005-06.

2 Facts of the case, in brief, are that the assessee is carrying on profession as a Chartered Accountant. During the course of assessment proceedings, the Assessing Officer noted from the computation statement that the assessee has shown long term capital gain as per Annexure at nil. As per Annexure to the return, the assessee indicated that he has earned net long term capital gain of Rs. 1,01,73,965/-, which he claimed as exempt u/s 54 of the I T Act on account of investment in new flat at Rs. 59,17,500/- and investment in NABARD Bonds for Rs. 50,00,000/- respectively. The capital gain has arisen to the assessee on account of transfer of assessee’s 50% share by virtue of development agreement dated 26.2.2004. The net long term capital gain was shown as under:

Amount of consideration received from Vinita Estate P Ltd – Builders and Developers (Wadhwas) Vasu Kamal, Bandra (W), Mumbai 50 on surrender ofFSI of land plot on 8 Chiranjeev Bldg. JVPD Scheme Mumbai 400 049 (but in 1985 and occupied in March, 1985) vide Development Agreement dated 26.2.2004/5.4.2004

(Gross) Rs. 1,09,17,500.00

Deduct :Cost of land – Bldg on 31.3.2004

(As per Balance sheet)  Rs. (-) 7,43,534,76

Net Long Term Capital Gain (More than 3 years holding and used for residence)

Rs 1,01,73,965.25

The Assessing Officer asked the assessee to file a detailed note on redevelopment of building known as “Chiranjeev Building” and also to furnish copy of relevant agreement for development.

2.1 The assessee, vide letter dated 15.9.2006 stated as under:

i) The building called ‘Chranjeev’ on plot no.8 in Greater Bombay CHS located on Gulmour Road no.4 JVPD Scheme Mumbai was built in 1985 and ground and first floor at the building along with plot of land was owned by assessee along with his wife Smt Chitra Khanna.

ii) The above said building was demolished for redevelopment vide agreement for development dt 26.2.2004 as entered into between the said owners andVinita Estates Pvt Ltd.

iii) The owners owned jointly plot of land admeasuring 840 sq.mts i.e. 1005 sq.yards. Part of the first floor of the building  was occupied by a tenant and the rest i.e. full ground floor and part ofthe first floor was occupied by owners.

iv) The owners entered into agreement with said developers to demolish the then structure and redevelop the said land into building into 50% – 50% sharing basis on the terms and conditions set out specifically in the agreement dt 26.2.2004.

v) As per the terms the plot of land will continue to be owned by the owners and developers have no right and title over it; the owners will use the FSI of the plot of land permissible by Municipal Corporation and that permissible FSI was 11835 sq. ft; the developers after loading their sources of FSI and out of total constructed area of new flats and its sharing between owners and developers is as per Annexure-III attached to the agreement.

vi) In consideration of the said agreement the owners received Rs. 2,18,35,000/-.

vii) Accordingly, the owners retained FSI of 11835 sq.ft and the sum as above was received from developers in consideration of the owners granting in favour of the developers the right authority and power to develop the said property.

3 The Assessing Officer perused the documents and noted that the transaction as arrived at between the parties has been registered at a market value of Rs, 3,82,50,000/- as against agreement consideration of Rs. 2,18,35,000/- , 50% share of consideration of which the assessee has adopted in the computation. The Assessing Officer asked the assessee to explain as to why deemed consideration as per market value shown in the registration documents should not be adopted as per provisions of sec. 50C. The assessee, vide its reply dated 30.10.2007 submitted that the provisions of sec.50C do not apply to the assessee. Since the assessee has received only Rs.1,09,17,500/- from Vinita Estate P Ltd as per development agreement dated 26.2.2004. The Registration Authorities have mentioned the market value of the property at Rs. 3,82,50,000/- for stamp duty purpose only.

3.1 However, the Assessing Officer was not convinced with the explanations given by the assessee. According to him, the assessee is claimed to have transferred a capital asset and shown capital gain on transfer of the same. Sec. 50C is a binding section on the Assessing Officer and therefore, the capital gain has to be worked out in accordance with the special provision for full value of consideration in certain cases.

3.2 During the course of assessment proceedings, on being allowed an opportunity to furnish the working keeping in view the provisions of sec. 50C of the Act, the assessee furnished the revised working after reducing indexed cost of the property at Rs.39,32,160/ and calculated the taxable capital gain of Rs. 42,75,340/-, the details of which are as under:

50% of deemed consideration of Rs. 3,82,50,000/-		1,91,20,000/-
Less: cost of property Rs. 10,24,000/-Being ½ share of 20,48,000/- as per valuers report dt 1.6.85.
Indexation Rs. 10,24,000/ x 480/125		39,32,168/-
Capital gain		1,51,92,840/-
Exemption u/s 54 on New flat purchased	59,17,500/-
Investment in Nabad Bonds u/s 54EC	50,00,000	1,09,17,500/-
Net capital gain		42,75,340/-

3.3 The Assessing Officer, thereafter, noted that in the case of the co-owner’s hand,    the claim of existence of capital gain out of the said agreement was not accepted. Therefore, he asked the assessee to explain its position.

3.4 It was submitted by the assessee that there is transfer of right, title and interest in the plot of land. The word transfer in sec.2 (47) includes extinguishment – relinquishment of right, title and interest in property. It was submitted that even though there was sale of plot of land or transfer of right, title and interest in the said plot of land but the assessee continues to be the joint holder – owner of plot in the records of the society, in fact and in substance. The assessee is a holder/owner on paper because the plot is not open plot but covered with a new structure shared by assessee and developer and/or their nominees to whom developer sold flats pertaining to developers 50% share in the building. Further, the assessee cannot use this plot alone and cannot put up any construction of their own even, as no permissible open space available for sideways or above 11th floor construction. It was submitted that the rights of so called plot holder owners in plot of land have been surrendered in favour of developer’s nomine, being purchasers of flats in the building who are now joint holders of plot of land along with their flats on proportionate basis. The assessee, in the instant case has neither charged any lease money nor transfer fee from flat purchasers being flat owners.

3.5 It was further submitted that the assessee( co-owner) of plot of land, have in effect extinguished their rights in the plot no.8 – land in favour of developers nominees/flat purchasers to becopme joint interest holders, and cease to be single holder of right, title and interest in the plot of land. The plot holder and flat owners have formed an association called “chiranjeev Residents Association” for managing jointly the day-to-day affairs of the building and contribution towards maintenance regularly.

3.6 It was further submitted that the assessee cannot use the plot for making any further structure beyond 11th floor and even if at a later stage, BMC allows further FSI, new additional structure cannot be made, unless developers nominees or flat buyers give consent to assessees for joint development. Freedom and liberty of single ownership of plot is taken away and every use of plot is to be shared with other flat owners. The assessee submitted that such relinquishment and extinguishment or right, title and interest in plot of land was capital asset u/s 2(47) of the Act and the receipt of consideration of Rs. 1,09,17,500/- was a capital receipt and exigible to capital gain tax and consideration is not “income from other sources” since it is for plot and development share of developers. It was strongly contended that the consideration received from developer under the development agreement related to land and FSI of plot of land being capital asset and as such was a capital receipt exigible to capital gain tax.

3.7 The Assessing Officer noted that the structure admittedly came into being in 1985 and therefore, the assesse’s working of cost as on 1.4.1981 as per valuer’s report was not correct. On being questioned by the Assessing Officer, the assessee submitted his rely, the gist of which is as under:

“To find out cost of acquisition ofland as on 1.4.1981, we can consider the value ofthe valuer viz Rs. 10,24,000 – and from this amount actual cost of building as per balance sheet viz Rs. 7,43,534 – can be reduced to find out cost of acquisition ofland as on 1.4.81, even though valuation by valuer was made on 31.3.1985 no appreciation in land prices between 1981 to 1985 was noted particularly area surrounding plot no.8 was marshy land. Only few plots near the area were built. Thus, cost of land as on 1.4.81 (being cost of acquisition) would be:

Total value as per valuers report            Rs. 10,24,000/-

Less: Cost of investment in building       Rs. 7, 43,534/-

Balance being cost of land on 1.4.81     Rs. 2,80,466/-

Rs.280,466/- is to be considered as cost of acquisition against actual payment of Rs. 41,605/- made at the time of purchase of land in July 1972. The appreciation is hardly 7 times 700% approx., the actual cost on 1.1.92. Due to impact of Bangaledesh War in 1971, no rise in and prices could be seen and this appreciation of 7 times/700% approx., was reasonable. The prices of properties rose after 1988 (there were riots in 1984 after murder of late PM Smt Indra Gandhi)

Hence Rs. 2, 80,466/- (against Rs. 41,605/-) is to be considered as cost of acquisition of land.

Summary:

a) Cost of acquisition of land         Rs. 2,80,466/-

b)  Cost of investment in Building  Rs. 7,43,534/-

Total cost of acquisition for purpose

of indexation u/s 48(ii) of ITAct Rs. 10,24,000/-

I further submit that in our revised – computation of Long Term Capital Gain (filed with my letter of reply dated 12.11.2007, the value as per valuers report has been taken at Rs. 10,24,000/- and is the cost of acquisition by assessee for the purpose of indexation – u/s 48(ii) of the IT Act. The working of Long Term Capital Gain showing Long Term Capital Gain at Rs. 42, 75,340/- is correct and may kindly be accepted by your honour.”

4          However, the Assessing Officer was  not convinced with the various explanations given by the assessee. Referring to various clauses of the development agreement, he came to the conclusion that the developers were given possession of the land for demolishing the structures and re-develop the same. Therefore, there is transfer of right of development which was otherwise enjoyed by the owners. Relying on the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwakardas Kapadia vs CIT reported in 260 ITR 491 he held that there is transfer of   capital asset attracting capital gain.

Rejecting the various explanations given by the assessee, he adopted the cost of land at Rs. 1,12,186 only. After indexing  the same, the Assessing Officer recomputed the capital gain at Rs. 76,64,008/-, details of which are as under:

50% of deemed consideration of           Rs. 3,82,50,000/- Rs 1,91,20,000

Less: Cost of property transferred Rs. 1,12,186/- as discussed Being /2 share of the same i.e. 1,40,233/-

as per valuers report dated 1.6.85.

Indexation        Rs. 112186 x 480/100 5,38,492

Capital Gain     1,85,81,506/-

Exemption u/s 54 on 59,17,500/-

New flat purchased

Investment in Nabard

Bond u/s 54EC 50,00,000/-      1,09,17,500

Net Capital Gain           76,64,008

5 Before the CIT(A), it was submitted that the assessee continued to own the land even after development. The owners would use the FSI of the land for construction at their cost. The owners received an amount of Rs. 2,18,35,000/- to be shared equally between the assessee and his wife. It was further submitted that when the agreement was put up for registration, stamp valuation authorities took the value at Rs. 3,82,50,000/- and the Assessing Officer has invoked provisions of sec. 50C to adopt this figure of Rs. 3,82,50,000/-. The assessee ascertained that the transfer of land and building or both fall within the ambit of sec. 50C. However, development rights on land and building don’t come under the purview of sec. 50C. It was submitted that in the instant case the right of ownership continued to be with the assessee. Transfer of development right should be treated at par with transfer of tenancy rights which is a capital asset. It was contended that since section 50C does not contain inclusive definition of land; no other meaning can be imputed. A couple of decisions were also relied on by the assessee before the CIT(A) in support of his contention.

6 The CIT(A), however, was not convinced with the arguments advanced by the assessee and upheld the action of the Assessing Officer by holding as under:

“I have considered the rival submissions and the materials on record. The main question here is whether section 50C is applicable. Sub-section 1 of sec. 50C states that where the consideration received or accruing as a result of transfer by the assessee of a capital asset being land or building or both is less than the value adopted or assessed by any authority of State Government (Stamp Valuation Authority), the value so adopted or assessed shall be used for the purpose of section 48. The provision is clear and unambiguous. In this case admittedly, the value adopted by the stamp authority is higher than the valuation shown by the assessee. The Assessing Officer had no way but to adopt the value as per section 50C. That being the case, there is no reason for me to interfere with the value adopted by the Assessing Officer. Consequently the appeal deserves to be rejected. In fine the appeal fails”

7 Aggrieved with such order of the CIT(A), the assessee is in appeal here before us with the following grounds:

1 The order passed by ld CIT(A) is bad in law.

2 The ld CIT(A) erred in not passing a speaking order on the claim that development right is neither land nor building and is not covered by sec. 50C and therefore stamp duty valuation cannot be applied to development rights.

3 The ld CITIA) also erred in not considering the claim of appellant that in the case of his spouse who is the co-owner of the property no tax liability had been attached and therefore, the appellant being the other co-owner cannot be burdened with greater tax liability.

4 The ld CIT(A) also erred in not passing appropriate order on the following grounds of appeal raised in Form No.35:

a) The ld ITO did not consider the cost of land as arrived by the assessee at Rs. 6,73,118/- viz Rs. 1,40,233/- (480/100) instead he has arrived at Rs. 5,38,492/- and the amount deducted at Rs. 5,38,492/- resulting in lesser by Rs. 1,34,626/-

b)  The ld ITO did not consider the indexation of building which is as per balance sheet is Rs. 7,43,534/- and the plot for development includes the cost of bungalow at the sight which is handed over to the builder/developers and whose entire debris, Malaba, etc., was taken by developers as per the development agreement and the cost since 1980 and as on 31.3.2004is Rs. 7,43,534/-. It comes to Rs. 35,68,961/- or Rs. 37, 17, 670/-. The accrual of long term capital gains on land and building be accepted.

c) The working filed by the assessee at Rs. 39,32,160/- may kindly be accepted. The receipt of Rs. 1,09,17,500/- received as consideration includes the cost of the land and the bungalow thereon.

d) The appellant prays that the order of the Assessing Officer may kindly be revised and necessary reduction of LTCG may kindly be allowed.

5 The above grounds of appeal are independent of each other and without prejudice to each other.

6 The addition mad by the AO to the appellant’s income may be deleted.

7 The appellant craves liberty to add, amend, alter, and/or withdraw any ofthe above grounds of appeal.

8 Consequent to the ruling of the ITAT , Mumbai as reported in Economics Times dated 2.1.2009 that tax cannot be levied on the money paid by a builder to a housing society or private individual for redevelopment of the property (copy enclosed) the amount of Rs. 1,09,17,500/ received by me from the developer for redevelopment of my property may be held as not taxable.

The assessee has also filed additional grounds which are as under:

i) That on the facts and in the circumstances of the appellant’s case and in law no income chargeable to tax under the provisions of I T Act 1961has accrued or arisen to the appellant during the Assessment Year 2005-06 on account of his transactions with M/s Vinita Estate P Ltd

ii) That on the facts and in the circumstances ofthe appellant’s case and in law ld CIT(A) has erred in confirming the capital gains as computed by the Assessing Officer ignoring that no capital gains whatsoever have accrued or arisen to the appellant on account of his transactions during the Assessment Year 2005-06 with M/sVinita Estate P Ltd.”

8 The ld counsel for the assessee submitted that the additional grounds are being taken since the CIT, in his order u/s 263 dated 30.3.2010 has now taken the position that the assessment order made by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue because the assessee is not entitled to deduction u/s 54 amounting to Rs. 59,17,500/- claimed by the assessee and allowed by the Assessing Officer. On account of the controversy thus raised by the CIT, it has become pertinent and necessary for the assessee to protect his interest by taking the correct legal plea that on account of his transfer with M/s Vinita Estate Pvt Ltd., no income chargeable to tax including long term capital gains has arisen or accrued to the assessee. This legal stand of the assessee can be adjudicated on the basis of material already on record and no fresh enquiry is needed. This legal stand taken by the assessee is supported by several orders of the ITAT and various High Courts including the jurisdictional High Court of Bombay.

9 After hearing both the sides and following the decision of the of the Hon’ble Supreme Court in the case of NTPC reported in 229 ITR 383 (SC) and in the case of Jute Corporation of India vs CIT     reported in 187 ITR 688, the additional grounds raised by the assessee are admitted.

10 The ld counsel for the assessee submitted that the assessee has not acquired or received any constructed area over and above the area of 11835 sft., to which the assessee was entitled to. The additional FSI was actually brought by the new comer and the assessee has only permitted the developer to construct. Since no cost has been incurred for the additional FSI, therefore, there is no capital gain. He further submitted that section 50C also cannot be applied to the assessee in view of the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs CIT reported in 260 ITR 491(Bom) Referring to the above decision, he drew the attention of the Bench to the observation of the Hon’ble High Court at page 39 of the paper book, which reads under:.

“In this case, the agreement is a development agreement and in our view, the test to be applied to decide the year of chargeability is the year in which the transaction was entered into. We have taken this view for the reason that development agreement does not transfer the interest in the property to the developer in general law and, therefore, sec. 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date ofthe agreement itself.”

The ld counsel for the assessee relied on the following decisions:

i) Jethalal D Mehta vs DCIT 2 SOT 422 (Mum)

ii) Maheswar Prakash2 Coop HSg Soc. Ltd 121 TTJ 641 (Mum)

iii) ITO vs Lotia Court Coop Hsg Soc. Ltd 118 TTJ 199(Mum)

iv)  New Shailaja Coop Hsg Soc. Ltd vs ITO 121 TTJ 62 (Mum)

v)  Amber Croft Coop Hsg Soc. Ltd ITA No.5697/Mum/06

vi) Om Shanti Coop Soc. Ltd vs ITO ITA No.2550/Mum/08

vii) ITO vs Shri Ram Kumar Malhotra 2010 TIOL 512 -Mum

10.1 Referring to the above decisions, he submitted that the assessee is not at all liable for any capital gain tax on account of transactions with M/s Vinita Estates P Ltd.

10.2 The ld DR, on the other hand strongly relied on the orders of the Assessing Officer and the CIT(A) and submitted that the various decisions cited by the ld counsel for the assessee are not applicable to the facts of the present case. Referring to paper book page 9 (page 8 and Cl.17 of the agreement), he submitted that the developer is entitled to demolish the building and the debris and other building material of the demolished building will belong to the developer as the consideration thereof is included in the aforesaid consideration Referring to the decision of the Tribunal in the case of Om Shanti Cooperative Society Ltd (supra), he submitted that there was no demolition of building and there was further construction to the existing building. Referring to the copy of the agreement, he submitted that it is not clear as to how the assessee and his wife are owners of 11835 sqf. FSI. He further submitted that in the assesse’s case, the entire building has been transferred. Referring to the various decisions cited by the ld counsel, he submitted that in all those cases, the existing building was not demolished and only further construction/modifications were done to the existing building. However, in the instant case, the entire building has been demolished and new construction took place. Therefore, the various decisions relied upon by the ld counsel for the assessee are not applicable to the facts of the present case. He submitted that the documents have been registered by the State Registration Authorities; therefore, the Assessing Officer had no other option but to apply provisions of sec. S0C. Here, there is a building. Therefore, the ld CIT(A) was justified in upholding the action of the Assessing Officer since it is a clear transfer of capital asset falling under the provisions of sec. S0C.

10.3 The ld counsel for the assessee, in his rejoinder submitted that there is no transfer of land and the land continued to be belonging to the assessee. Only the builder brought new FSI/TDR and no FSI, which were originally with the assessee, has been transferred to the developer. The assessee has only permitted the Developer to construct. Therefore, provisions of sec. 50C are not applicable to the facts of the present case and no liability for capital gain tax. As regards taking away of the debris by the developer, he submitted that it is a minor issue and we cannot come to a conclusion of this magnitude. He submitted that whatever cost of the debris – section 54 & 54EC will take care of it. It can be used for that part of the property which has come to me. He submitted that no FSI which was originally belonging to the assessee has been passed out. He submitted that section 50C talks of land, building or both. In the case of the assessee, neither of the above has been transferred and the assessee has only permitted the developer to construct. Hence, provisions of sec. 50 are not applicable to the facts f the present case.

11 We have considered the rival arguments made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that as per the copy of the agreement filed in the Paper Book pages 2 to 32, the building in question is jointly owned by the assessee and his wife Mrs Chitra C Khanna. There is also no dispute to the fact that as per the said agreement, in consideration of the said land in view of the development right/authority and power to develop the said property, the developers have agreed to pay the owner a consideration of Rs. 2,18,35,000/-. There is also no dispute to the fact that the Registration authorities, for the purpose of stamp duty, determined such value at Rs. 3,82,50,000/-. We find, the Assessing Officer invoked the provisions of section 50C and adopted the deemed consideration of Rs. 3,82,50,000/-. As the consideration of 50% share of the assessee comes to Rs. 1,91,20,000/-, the Assessing Officer, after deducting indexed cost of acquisition of the value of the land determined such capital gain at Rs. 1,85,81,506/-. After allowing exemption u/s 54/54EC, the Assessing Officer brought to tax the capital gain of Rs. 76,64,008/- which has been upheld by the CIT(A). It is the submission of the ld counsel for the assessee that since there is no transfer of land and since the builder/developer brought additional FSI and since no part of the FSI belonging to the assessee has been transferred; therefore, in view of the various decisions cited the assessee is not liable to pay capital gain tax. It is the submission of the ld DR that the decisions cited by the ld counsel for the assessee are not applicable to the facts of the present case since in none of the cases, there is demolition of the building and on those cases, there was only further construction or modification to the existing building.

12 We find merit in the above submissions of the ld DR. We find the assessee before the Assessing Officer vide his reply dated 27.11.2007 has submitted as under:

“The assessee asserts that there is transfer of right, title and interest in the plot of land. The word transfer in sec. 2(47) includes extinguishment – relinquishment of right, title and interest in property. It is submitted that even though there was no sale of plot of land or transfer of right, title and interest in the said plot of land and the assessee continues to be the joint holder – owner ofplot in the record ofthe society, in fact and in substance, the assessee is a holder/owner on paper because the plot is not open plot but covered with a new structure shared by assessee and developer and/or their nominees to whom developer sold flats pertaining to developers 50% share in the building. Further, the assessees cannot use this plot alone and cannot put up any construction of their own even, as no permissible open space available for sideways or above 11th floor, construction (BMC cannot allow any FSI against development regulations). In fact the rights of so called plot holder owners in plot of land have been surrendered in favour of developer’s nominees, being purchasers of flats in the building who are now joint holders of plot of land along with their flats on proportionate basis. The assessees viz plot holder has neither charged any lease money using the plot by nor transfer fee from flat purchasers being flat owners.

The assessee further submits that the assessee (co-owner) of plot of land, have in effect extinguished their rights in the plot no 8- land in favour of developers nominees/flat purchasers to become joint interest holders, and case to be single holder of right, title and interest in the plot of land.

The plot holder and flat owners have formed an association called ‘Chiranjeev Residents Association’ for managing jointly the day-to-day affairs ofthe building and contribution towards maint4enance regularly.

The assessees further submits that assessee cannot use the plot for making any further structure beyond 11th floor and even if at a later stage, BMC allows further FSI new additional structure cannot be made, unless developers nominees or flat buyers give consent to assessees for joint development. Freedom and liberty of single ownership of plot is taken away and every use ofplot is to be shared with other flat owners.

All this amounts to relinquishment and extinguishment of right, title and interest in plot of land in favor of other flat owners. The assessees further submits that such relinquishment and extinguishment of right, title and interest in plot of land was capital asset, u/s2(47) of the income tax Act, and the receipt of consideration of Rs. 1,09,17,500/- was a capital receipt and exigible to capital gain tax (long term in our case) and such consideration as not income from other sources, as it is for plot and development share ofdevelopers.

Further the assessees feels and fees strongly that consideration received from developer under the development agreement related to land and FSI of plot of land being capital asset (and not any business activity or any other income earning activity) and as such was a capital receipt (not revenue receipt) exigible to capital gain tax.”

We find clause (p) at page 4 of the agreement reads as under:

Cl.(p) “Since the owners are retaining 50% of the area the developers are entitled to develop the remaining 50% area and retain the same.”

Cl.4.3 at page 6 and clause 17 at page 8and 9 of the agreement read as under:

Cl.4.3  The owners have retained FSI of 11,835 sq.ft FSI originating from the said land and the owners have agreed to pay to the developers the costs of construction thereof fixed at Rs. 1000/- per sq.foot. The amount payable by the owners to the developers workout to Rs. 1,18,35,000/- (Rupees one core eighteen lacs thirty five thousand only and therefore each owner is liable to pay Rs. 59,17,500/- i.e (Rupees fifty nine lacs seventeen thousand five hundred only) Against the receipt the balance amount mentioned in clause 4.1(b) the owners will pay the developers the said costs of construction in advance.”

Cl.17: On the license being granted the Developers shall be entitled to demolish the said existing building. The debris Katmal building material of the existing structures will belong to developers as the consideration thereof is included in the aforesaid consideration.”

12.1 A perusal of the various clauses of the agreement and more particularly the above clauses including the submission of the assessee before the Assessing Officer, clearly indicate that there is transfer of land and building. Therefore, the provisions of sec 50 are clearly applicable to the facts of the present case. The various decisions relied on by the ld counsel for the assessee are distinguishable and not applicable to the facts of the present case.

12.2 So far as the 1st six decisions mentioned in para 10 of this order relied on by the ld counsel for the assessee while arguing the additional grounds, we find in none of the cases there was demolition of existing building. In all those cases, there was construction of additional floor/modifications on the existing structure. However, in the instant case, the land and building was transferred as asserted by the assessee, the existing building was demolished and new construction taken place. Therefore, those decisions are not applicable to the facts of the present case.

12.3 So far as the decision of the Tribunal in the case of Shri Ram Kumar Malhotra (supra) is concerned, we find the CIT(A) in the said order has directed the Assessing Officer to consider the gains arising on transfer of FSI/TDR rights as capital gain for which, the Assessing Officer will make necessary calculation of sale consideration and cost of acquisition and/or improvement. He has directed the Assessing Officer to allow exemption u/s 54 and 54EC. Aggrieved with such order of the CIT(A), revenue was in appeal before the Tribunal and the department’s appeal was dismissed by the Tribunal. Even in that case also there is no mention of demolition of existing building. The Assessing Officer in that case has treated the income from transfer of TDR rights as ‘income from other sources’ as against ‘capital gain’ declared by the assessee and the CIT(A) directed the Assessing Officer to consider the same as ‘capital gain’ and allow deduction u/s 54 and 54EC. Therefore, that decision, in our opinion, is also not applicable to the facts of the present case.

13 Considering the totality of the facts of the present case and considering the fact that the assessee in the instant case has transferred the land and building to the developer through a document, which has been registered through State Registration Authorities; therefore, there is transfer of a capital asset,    the capital gain on which is chargeable to income tax. In this view of the matter, both the additional grounds raised by the assessee are dismissed.

14 Now coming to the original grounds raised by the assessee, we find grounds of appeal nos 1, 5, 6 &7 are general in nature and, therefore, are dismissed.

16 So far as grounds of appeal no.2 is concerned, we find the CIT(A) has clearly mentioned that provisions of sec. 50C are clearly applicable to the facts of the present case. We have already held in the preceding paragraphs that in this case there is transfer of land and building to the developer and therefore, provisions of sec. 50C are clearly applicable to the facts of the present case. In this view of the matter, grounds of appeal no.2 by the assessee, is dismissed.

17 So far as grounds of appeal no3 is concerned, we find the assessee has not produced any documentary evidence before us to substantiate that in the case of spouse, who is a co-owner, no tax liability has been fastened. We, therefore, find no merit in the submission of the ld counsel for the assessee that he being other co-owner, cannot be burden to tax liability. From the order of the CIT(A) also, we find the assessee has not produced any documentary evidence before him. Since the assessee has failed to substantiate with evidence that no tax liability had been attached in the case of the spouse of the assessee, therefore, this ground by the assessee is dismissed.

18 So far as the grounds of appeal no.4(a) is concerned, although, the assessee has valued the cost of land as on 1.4.81 at Rs. 1,40,233/-, we find the same is on the basis of valuer’s report in the year 1985. The assessee has not produced any documentary evidence before the Assessing Officer to establish the actual cost of land that needs deduction from the consideration received. Under these circumstances, the value adopted by the Assessing Officer at Rs. 1,12,186/-, in our opinion is justified. Although, the order of the CIT(A) is silent on this issue despite a specific ground taken before him, we find from the material available that the assessee has not given any cogent evidence or explanation for adoption of cost of land at Rs. 1,40,233/- as against Rs. 1,12,186/- adopted by the Assessing Officer. Under these circumstances, the ground of appeal no.4(a) is dismissed.

19 So far as grounds of appeal no.4(b) is concerned, we find, admittedly, the balance sheet of the assessee shows the value of the building at Rs. 7,43,534/-. However, no justification/reason has been given by the Assessing Officer as to how and why he has not considered the indexation of the building, which is as per the balance sheet, while calculating the capital gain. The CIT(A) has also not dealt with this issue. Under these circumstances, we deem it proper to restore this issue back to the file of the Assessing Officer to pass a speaking order on this issue in accordance with law and after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds of appeal no.4(b) is accordingly allowed for statistical purpose.

20 So far as the grounds of appeal no.4(c) regarding the working of capital gain filed by the assessee at Rs.39,32,160/- is concerned, in view of our decision in respect of grounds of appeal 4(b) wherein we have restored the issue to the file of the Assessing Officer, this ground needs to go back to the file of the Assessing Officer for fresh computation of capital gain. Accordingly, grounds of appeal no.4(c), is allowed for statistical purpose.

21 Grounds of appeal no.4(d) being general in nature is dismissed.

22 So far as grounds of appeal no.8 is concerned, we find the assessee relied on the decision of the Tribunal in the case of New Shailaja Co-op Hsg Soc Ltd vs ITO vide ITA No.512/Mum/2007dated2.12.2008 for the Assessment Year 2003-04. In that case the assessee became entitled to additional FSI of around 11000 sq,ft due to its land holding. The assessee transferred this entitlement for consideration of Rs. 48.96 lacs to the builder. Under these circumstances, it was held by the Tribunal that the assessee has not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible for additional FSI. Since there was no cost of acquisition for the additional FSI, the Tribunal, relying on a couple of decisions including the decision of the Hon’ble Supreme Court in the case of B C Sreenivasa Shetty held that no capital gain chargeable to tax has arisen. However, in the instant case, there is a transfer of existing land and building. It was demolished by the builder for fresh construction. The documents were registered by the State Registration Authorities. Therefore, the decision of the Tribunal in the case of New Shailaja Co-op Hsg So Ltd (supra), in our opinion is not applicable to the facts of the present case.    In this view of the matter, the grounds of appeal no. 8 by the  assessee, is dismissed.

23 In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced on the 23th, day of April 2011.