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2008 (6) TMI 381 - AT - Income TaxComputation of capital gain - Income derived from salaries dividend etc. - CIT(A) held that the assessee and other members of the society had transferred a capital asset within the meaning of section 45 and therefore capital gain is chargeable thereon. HELD THAT - The admitted facts of the case under consideration are that the owner of the property i.e. land and buildings/flats is Jay Temple Co-op. Hsg. Soc. There is an agreement between the society and developer M/s. Hetali Estate and Properties (P.) Ltd. The developer was in possession of T.D.R. and was looking out for properties where on the developer can utilize the T.D.R. The society agrees to grant permission to the developer on certain terms and conditions. The members of society including the assessee received some amount. The case of the revenue is that the society through its members had transferred the development rights and such rights are subject to capital gain u/s 45 of the Income-tax Act. We find that the assessee was neither holding any capital asset nor the same has been sold exchange or relinquish of the assets. In other words there is no transfer of capital asset in accordance with Income-tax Act. We therefore of the considered view that section 45 is not attracted. We hold that the assessee is not liable to capital gain u/s 45 of the Income-tax Act. In the result the appeal of the assessee is allowed.
Issues Involved:
1. Taxability of compensation received by the assessee as capital gains. 2. Determination of the cost of acquisition for the purpose of computing capital gains. 3. Applicability of section 45 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Taxability of Compensation Received by the Assessee as Capital Gains: The primary issue is whether the compensation of Rs. 80,000 received by the assessee from a developer through the Jai Temple View Co-op. Hsg. Society should be taxed as capital gains. The Assessing Officer (AO) contended that the amount was taxable as capital gains, arguing that the society, through its members, had transferred development rights to the developer. The AO calculated the capital gains based on the compensation receivable by the assessee, deducting the indexed cost of acquisition. The CIT(A) upheld this view, noting that the society and its members had effectively transferred a capital asset, thus attracting capital gains tax under section 45 of the Income-tax Act. 2. Determination of the Cost of Acquisition for the Purpose of Computing Capital Gains: The AO determined the cost of acquisition by estimating the value of the flat as of 1-4-1981 at Rs. 1,20,000 and considering 1/3rd of this value as the 'right of development,' amounting to Rs. 40,000. The indexed cost was calculated at Rs. 1,03,600, which was then deducted from the compensation of Rs. 5,80,000 to arrive at the taxable capital gains of Rs. 4,76,400. The CIT(A) confirmed this methodology, agreeing with the AO's approach. 3. Applicability of Section 45 of the Income-tax Act, 1961: The tribunal examined the applicability of section 45, which requires the existence of a capital asset, its ownership by the assessee, a transfer of the asset, and profits arising from such transfer. The tribunal found that neither the assessee nor the society possessed or transferred any Transferable Development Rights (TDR). The developer owned the TDR, and the society merely granted permission for additional construction, which did not constitute a transfer of a capital asset. The tribunal noted that the voluntary consent given by the members did not form part of any rights or capital assets as per the agreement to purchase the flat or the regulations of the society. The tribunal distinguished the case from the Supreme Court decision in A.R. Krishnamurthy v. CIT and the ITAT Gauhati Bench decision in ITO v. Md. Nasser Ahmed, noting that in those cases, there was a clear transfer of rights or ownership, which was not the case here. Conclusion: The tribunal concluded that the assessee did not hold or transfer any capital asset, and therefore, section 45 of the Income-tax Act was not applicable. Consequently, the compensation received by the assessee was not liable to be taxed as capital gains. The appeal of the assessee was allowed.
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