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2014 (3) TMI 324 - AT - Income TaxValuation of cost of acquisition of FSI and TDR Held that - The decision in Land Breez Co. Operative Hosing Society Ltd. Versus Income-tax Officer, Ward-19(3) (2) 2013 (2) TMI 177 - ITAT MUMBAI followed - TDR available under development control regulation of Greater Mumbai, 1991 amounts to transfer of capital assets and that since no cost of acquisition can be ascribed to such a right computational provisions of section 48 cannot be applied, that such transfer cannot be subjected to tax under capital gain - no capital gain can be charged on transfer of additional FSI for sale consideration, as it had no cost of acquisition - in absence of any evidence that the assessee-society had paid/contributed any sum towards purchase of TDR/FSI no amount could be attributed towards cost of acquisition and that mere granting permission to allow the use of FSI/ TDR did not involve payment of any amount. The transfer of TDR amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head Capital Gain for the reason that there is no cost of acquisition in acquiring the right which has been transferred and computational mode given in section 48, therefore, taxing under the head capital gain by the AO cannot be sustained - Decided against Revenue.
Issues Involved:
1. Cost of acquisition of additional 0.25 FSI. 2. Taxability of the amount received from the release of rights. 3. Indexation of capital gains. 4. Nature of the capital receipt and its taxability. 5. Application of the principle of mutuality. Issue-wise Detailed Analysis: 1. Cost of Acquisition of Additional 0.25 FSI: The Assessing Officer (AO) determined the cost of acquisition of additional 0.25 FSI at NIL. However, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted the cost of acquisition at Rs. 35,55,290/-. The CIT(A) based this on the development agreement dated 26.06.1994, where the assessee-society entered into a contract to sell 0.75 FSI, which later increased to 1 FSI. The society received Rs. 75 lakhs for the additional 0.25 FSI and the right to utilize Transferable Development Rights (TDR). The CIT(A) held that the cost of acquisition should be appropriated for 0.25 FSI at Rs. 142.32 lakhs, considering the conveyance deed dated 08.04.2003, making the transaction short-term as it was completed within 36 months from the date of purchase. 2. Taxability of the Amount Received from the Release of Rights:The AO treated the Rs. 75 lakhs received by the assessee-society as sale consideration for surrendering the rights of 0.25 FSI and use of additional TDR, and thus taxable as capital gains. The assessee argued that the amount was a capital receipt and not taxable. The CIT(A) held that the amount received was for the sale of capital assets, and the society had to pay capital gains tax on it. However, the Tribunal found that various benches of the Tribunal had held that no cost of acquisition could be attributed to FSI and TDR, and thus, such transfer could not be subjected to tax under capital gains. 3. Indexation of Capital Gains:The assessee argued that indexation should be allowed from the year 1990 when the Agreement for Sale was entered into, and possession of the land was obtained. The CIT(A) held that the Cost Inflation Index had to be taken for the year 2004-05, as the asset came into existence in AY 2004-05. The Tribunal did not specifically address this issue in the final decision, as it was rendered academic after deciding the main issues. 4. Nature of the Capital Receipt and Its Taxability:The assessee contended that the receipt of Rs. 75 lakhs was a capital receipt and not chargeable under the head "Income From Capital Gain." The Tribunal, following the decisions in cases like Om Shanti Co-op HSG Society, Maheshwar Prakash Co. OP. HSG Society, and Land Breeze Co-op. Housing Society Ltd., held that no capital gain could be charged on the transfer of additional FSI for sale consideration, as it had no cost of acquisition. Therefore, the Tribunal reversed the CIT(A)'s order and decided in favor of the assessee. 5. Application of the Principle of Mutuality:The assessee argued that the receipt of Rs. 75 lakhs was exempt from tax based on the principle of mutuality. The CIT(A) rejected this plea, stating that the amount received from flat purchasers by the contractor could not be considered reimbursement made by society members. The Tribunal did not delve into this issue in detail, as the main issue of the cost of acquisition and taxability of FSI/TDR was decided in favor of the assessee. Conclusion:The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the AO. The Tribunal held that no cost of acquisition could be attributed to the additional 0.25 FSI and TDR, and thus, the transfer could not be subjected to tax under capital gains. The grounds of cross-objection and additional grounds filed by the assessee were allowed for statistical purposes, as they became academic after the main decision. Order pronounced in the open court on 26th February, 2014.
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