2017 (8) TMI 1598 - AT - Income Tax

Long Term Capital Gain, Taxability and Year of Taxability - taxability or assessibility of the income in which year - Determination of cost of acquisition of the rights being transferred - whether the receipts on account of development agreement relating to TDR related FSI is taxable as capital gains or not? - HELD THAT - We find that this issue has been adjudicated upon by the Hon ble Bombay High Court in the case of CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd 2014 (12) TMI 1069 - BOMBAY HIGH COURT . It is held that the asset i.e. FSI/TDR is generated by change in the development control regulations. A specific insertion would therefore be necessary so as to ascertain its cost for computing the capital gains. The Court, referring to the decision of the Apex Court in CIT v. D. P. Sandu Bros Chembur P Ltd 2005 (1) TMI 13 - SUPREME COURT held that all which is capable of acquisition at a cost would be included within the provisions pertaining to the head capital gains as opposed to assets in the acquisition of which no cost at all can be conceived. Thus, the Hon ble Bombay High Court held that since the cost of acquisition of the rights being transferred cannot be determined, the amount is not liable to capital gains tax. We respectfully following Hon ble Bombay High Court in the case of Sambhaji Nagar Co-op. Hsg. Society Ltd (supra) hold that consideration received for permitting the developer to use TDR/FSI rights on the land belonging to the assessee is not taxable as capital gains. Accordingly, we allowed the issue of assessee appeals in both the years. However, in the given facts and circumstances, we are of the view that assessibility of these receipts falls in AY 2004-05 and not in AY 2002-03. Accordingly, both the appeals of the assessee are allowed.

Summary

Issues Involved:
1. Taxability and Year of Taxability of Long-Term Capital Gains.
2. Taxability of Consideration Relating to Permission Granted for the Use of TDR Related FSI.

Detailed Analysis:

1. Taxability and Year of Taxability of Long-Term Capital Gains:

The primary issue revolves around whether the income from a development agreement related to TDR (Transferable Development Rights) should be taxed as capital gains and in which assessment year it should be taxed. The Assessee argued that the transfer of the relevant capital asset under Section 2(47)(v) of the Income Tax Act occurred during the Financial Year 2003-2004, making it taxable in the Assessment Year (AY) 2004-2005. However, the CIT(A) determined that the transfer took place during the Financial Year 2001-2002, thus making it taxable in AY 2002-2003.

The Tribunal examined the facts and found that the Assessee entered into a development agreement with a developer, West Coast International, on 28-09-2001, which falls in AY 2002-2003. The Assessee received a majority of the consideration before 31-03-2002, with the remaining amount received before 15-11-2002. The Tribunal concluded that the transaction should be assessed in AY 2002-2003, aligning with the CIT(A)'s view. However, the Tribunal also noted that the Assessee disclosed the capital gains in AY 2004-2005, leading to protective taxation in AY 2004-2005.

2. Taxability of Consideration Relating to Permission Granted for the Use of TDR Related FSI:

The second issue concerns the taxability of ?1,32,00,000 received for granting permission to use TDR related FSI. The Assessee contended that this amount should be considered a capital receipt with no cost of acquisition, thus not giving rise to taxable capital gains. The CIT(A), however, treated the TDR and FSI as capital assets and taxed the amount as capital gains.

The Tribunal referred to several precedents, including the Hon'ble Bombay High Court's decision in CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd [2015] 370 ITR 325 (Bom), which held that since the cost of acquisition of TDR/FSI rights cannot be determined, the amount is not liable to capital gains tax. The Tribunal also cited the ITAT Mumbai's decision in Jethalal D. Mehta Vs. DCIT (2005) 2 SOT 422 (Mumbai) and Maheshwar Prakash-2 Co-op. Hsg. Society Ltd v ITO [2009] 118 ITD 223 (Mumbai), which supported the view that rights arising from TDR are not taxable as capital gains due to the absence of a cost of acquisition.

Conclusion:

The Tribunal concluded that the consideration received for permitting the developer to use TDR/FSI rights on the Assessee's land is not taxable as capital gains. The Tribunal allowed the Assessee's appeals for both years, holding that the assessibility of these receipts falls in AY 2004-2005 and not in AY 2002-2003. The appeals of the Assessee were allowed, and the order was pronounced in the open court on 04-08-2017.