2015 (1) TMI 429 - HC - Income Tax

Capital asset - Construction of theatres on leased land - whether, on the facts and in the circumstances of the case, and in law, the Income Tax Appellate Tribunal is right in coming to the conclusion that Floor Space Index is a capital asset - Held that - Floor Space Index is an asset which is attached with the property and not with the business. Therefore, we are of the considered opinion that the Tribunal has not committed any error in dismissing the appeal of the revenue. - Decided against Revenue.

Summary

Issues:
Challenge to Tribunal's order dismissing revenue's appeal on capital gain treatment.

Analysis:
The case involved a partnership firm engaged in real estate and theatre business. The firm acquired land in 1971 and constructed theatres, earning income from films and shop rentals. The firm showed capital gain in its 1993-94 income tax return, but the Assessing Officer rejected the claim. The Commissioner of Income Tax (CIT) allowed the firm's appeal, leading the revenue to appeal to the Tribunal, which dismissed it. The substantial question of law was whether the Tribunal was correct in considering "Floor Space Index" as a capital asset.

The advocate for the revenue argued that the Tribunal erred in dismissing the appeal and relied wrongly on Section 45(2) of the Income Tax Act. On the other hand, the respondent's advocate supported the Tribunal's decision, stating no reason to interfere with it. The Tribunal found that the Floor Space Index (FSI) is an asset attached to the property, not the business, and upheld the CIT's decision. The High Court agreed with the Tribunal's view, confirming that FSI is a capital asset and dismissing the revenue's appeal.

In conclusion, the High Court upheld the Tribunal's decision that FSI is a capital asset attached to the property. The Court found no error in the Tribunal's dismissal of the revenue's appeal and answered the substantial question of law in favor of the assessee, holding that FSI is indeed a capital asset.