Case Law Details

Case Name : ITO Vs. Hemandas J. Pariyani (ITAT Mumbai)
Appeal Number : ITA No. 2508/Mum/2010
Date of Judgement/Order : 29/04/2011
Related Assessment Year : 1997- 98
Courts : All ITAT (4236) ITAT Mumbai (1416)
The issue is whether the amount received by the society and its member on account of transferable development rights is taxable under capital gains. The issue in dispute is covered by the decision of the ITAT in the case of Jethalal v DCIT wherein it was held that transferable development rights granted by the Development Control Regulations for Greater Mumbai, 1991, qualifying for equivalent floor space index having no cost of acquisition, sale thereof does not give rise to taxable capital gains. Since the facts of the case under consideration is identical to that of the decision of the ITAT in the said case, the CIT(A) was justified in directing the AO not to charge capital gains tax on the compensation received by the assessee even on a protective basis. Amount received by the society and its member on account of transferable development rights is not taxable under capital gains.

ITO Vs. Hemandas J. Pariyani (ITAT Mumbai)

ITA No. 2508/Mum/2010
Assessment Year: 1997- 98

ORDER

PER V. DURGA RAO, J.M.:

This appeal filed by the Revenue is directed against the order of CIT(A)- 35, Mumbai, passed on 08/01/2010 for the assessment year 1997-98 wherein the assessee has raised the following grounds of appeal:-

“1. The order of the CIT(A) is opposed to law and facts of the case.

2. The Ld. CIT(A) has erred in holding that the assessee was not holding any capital asset, ignoring the fact that the share of the assessee in the total FSI available to the CHS is the capital asset held by the assessee.

3. The ld. CIT(A) erred in holding that the capital asset has not been sold exchanged or relinquished, ignoring the fact the assessee’s share in the total FSI available to the CHS has been sold to the developer i.e. New India Construction Co. and the consideration of Rs. 5,87,565/- is towards the sale of this capital asset.

4. For these and other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that the AO restored.”

2. Briefly the facts of the case are that the assessee is a registered member of the society viz., M/s Rajratan Palace Cooperative Housing Society Ltd. During the course of assessment proceedings, the AO noticed that society had entered into agreement dated 18/05/1996 with M/s New India Construction Company and as per the agreement, the society and the members of the society received an amount of Rs. 3,02,16,828/- on account of sale of FSI to M/s New India Construction Company. Out of the above amount, Rs. 2,99,65,828/- was received directly by the 51 members of the society as per the 51 independent agreements made by the members with the builders and the society received only Rs. 2,51,000/-. As M/s New India Construction Company entered into separate agreements with the individual members of the society, reopening proceedings u/s 147 of the Act were initiated to bring to tax the compensation received by each and every 51 members of the society as the income received from M/s New India Construction company was not declared in the return of income. Since total amount of compensation received from M/s New India Construction Company by Rajratna Palace Coop. Hsg. Ltd and 51 members of the cooperative society is taxed on substantial basis in the lands of coop. housing society, the share of compensation received by the assessee of Rs. 5,87,565/- was charged on protective basis. Aggrieved by the order of AO, the assessee carried the matter in appeal before the CIT(A).
3. Before the CIT(A), the assessee filed written submission and the contents of which had been extracted by the CIT(A) in his order at page 2. After considering the submissions of the assessee, the CIT(A) directed the AO not to charge capital gains tax on the compensation received by the assessee even on protective basis by holding as under:-

“On carefully considering the facts of the case as well as going through the orders of Hon’ble ITAT particularly in the case of Deepak S. Shah Vs. ITO, Ward 2 0(2) which is found to be a latest decision dated 16/06/2008, wherein on the identical set of facts and circumstances and after thoroughly examining the issue and conditions laid down as per section 45 of the IT Act as well as the definition of capital asset as per section 2(14) of the Act, the Hon’ble ITAT held that the assessee was neither holding any capital asset nor the same has been sold, exchange or relinquish of assets. In other words, there is no transfer of capital asset in accordance with IT Act. We, therefore, are of the considered view that section 45 of the Act is not attracted in the light of the above discussion. We hold that the assessee is not liable to capital gain u/s 45 of the Act”. The Hon’ble ITAT before coming to the above conclusion have also discussed the judgement of Hon’ble Supreme Court in the case of AR Krishnamurthy and found the same to be distinguishable on the facts. By respectfully following the above decision of the Hon’ble Jurisdictional ITAT, which is squarely applicable to the facts of the appellant’s case, I also hold that the provisions of section 45 of the Act is not applicable in the case of the appellant and the appellant is not liable for capital gains. The AO is, therefore, directed not to charge capital gains tax on the compensation received by the assessee even on protective basis. This ground is, therefore, allowed in favor of the appellant.”

4. Aggrieved by the order of CIT(A), the revenue is in appeal before us.

5. The learned DR has relied upon the order of AO whereas the learned counsel for the assessee has placed reliance on the order of CIT(A) and canvassed that the issue under consideration is covered by the decision of ITAT, Mumbai in the case of Jethalal D. Mehta Vs. DCIT, [2005] 2 SOT 422 (Mum.).

6. We have heard the learned representatives of the parties and perused the record. We find that the issue in dispute is covered by the decision of ITAT in the case of Jethalal Vs. DCIT (supra) wherein the ITAT  held that “transferable development rights granted by the Development Control Regulations for Greater Mumbai, 1991, qualifying for equivalent floor space index having no cost of acquisition, sale thereof does not give rise to taxable capital gains”. Since the facts of the case under consideration is identical to that of the decision of the ITAT in the said case, we respectfully follow the same and in the light of that we uphold the order of the CIT(A) in directing the AO not to charge capital gains tax on the compensation received by the assessee even on protective basis. Accordingly, the grounds raised by the revenue on this count is hereby dismissed.

7.  In the result, appeal of the revenue is dismissed.

Pronounced in the open court on this   day of 29th April, 2011.

Mumbai, Dated: 29th April, 2011

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Category : Income Tax (25033)
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