2011 (4) TMI 100 - AT - Income Tax

Capital asset - sold exchanged or relinquished - permission to a builder to permit construction on the land of society - Held that the assessee was neither holding any capital asset nor the same has been sold, exchange or relinquish of assets. - 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 upheld.

Summary

Issues:
1. Whether the order of CIT(A) is contrary to law and facts of the case.
2. Whether the assessee was holding a capital asset.
3. Whether the capital asset was sold, exchanged, or relinquished.
4. Whether the compensation received is taxable as capital gains.

Issue 1: Order of CIT(A)
The appeal filed by the Revenue challenged the order of CIT(A)-35, Mumbai, for the assessment year 1997-98. The Revenue contended that the CIT(A) erred in holding that the assessee was not holding any capital asset. The Revenue argued that the share of the assessee in the total Floor Space Index (FSI) available to the Cooperative Housing Society (CHS) constituted a capital asset held by the assessee. The Revenue further contended that the capital asset had been sold to the developer, New India Construction Co., for a consideration, and thus, the capital gains tax should apply.

Issue 2: Capital Asset
The facts revealed that the assessee, a member of M/s Raj ratan Palace Cooperative Housing Society Ltd., had received compensation from M/s New India Construction Company for the sale of FSI. The Revenue initiated proceedings to tax the compensation received by each member of the society, including the assessee, as income. The AO charged the share of compensation received by the assessee on a protective basis. The CIT(A) considered the submissions and decided not to charge capital gains tax on the compensation received by the assessee, citing a decision by the Hon'ble ITAT that the assessee was not holding any capital asset that was sold, exchanged, or relinquished.

Issue 3: Taxability of Compensation
The Revenue appealed the CIT(A)'s decision, arguing that the compensation received should be taxed as capital gains. However, the ITAT upheld the CIT(A)'s order, relying on a previous decision that stated the sale of transferable development rights did not give rise to taxable capital gains. The ITAT found the facts of the case identical to the previous decision and dismissed the Revenue's appeal.

In conclusion, the ITAT Mumbai upheld the CIT(A)'s decision and dismissed the Revenue's appeal, stating that the compensation received did not attract capital gains tax. The judgment was pronounced on April 29, 2011.