2015 (7) TMI 1368 - AT - Income Tax

Nature of receipt - Compensation received - difference of compensation received and the compensation and brokerage paid for alternate accommodation - Amount received from the Developers for agreeing to the redevelopment, for alleviating hardship of shifting/reshifting and agreeing to share the common area with more persons after redevelopment - Capital gain or Income from other sources - HELD THAT - In Paranugraha Co-op. Housing Society Ltd. 2014 (2) TMI 688 - ITAT MUMBAI it has been held that the TDR is embedded in the land for the purposes of addition made by the owner or lessee; that this TDR, in the form of additional FSI, is negotiable by the owner to the buyer/developer, only for prospective development; that there is no element of cost to the owner and no capital gain is exigible. The other decisions relied on by the assessee are to the same effect. They have been rendered by co-ordinate Benches of the Mumbai Tribunal. There is merit in the contention of the assessee, that the hardship compensation received was due to the problem faced by the assessee on account of demolition of the building and this receipt is, therefore, not a taxable capital gain, there being not transfer of any capital asset involved and no cost of acquisition having been incurred. Disallowance u/s 14A r.w.r. 8D - assessee has contended that the authorities below have wrongly applied Rule 8D of the Rules without pointing out any item of expenditure as having been incurred by the assessee to earn exempt income - HELD THAT - The matter stands covered in favour of the assessee by the decision of the Hon ble jurisdictional High Court in the case of CIT vs. K. Reheja Corporation P. Limited . 2011 (8) TMI 148 - BOMBAY HIGH COURT as upheld the decision of the Tribunal, whereby the deletion of disallowance of interest made u/s 14A of the Act, in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning dividend income, was upheld. In CIT vs. Hero Cycles Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT as held, inter alia, that the contention of the Revenue that direct or indirect sum of expenditure is always incurred which must be disallowed u/s 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, could not be accepted; and that disallowance u/s 14A requires a finding of incurrence of expenditure and where it is found that for earning exempted income, no expenditure has been incurred, disallowance u/s 14A cannot stand. - Decided in favour of assessee.

Summary

Issues:
1. Tax treatment of amount received for agreeing to redevelopment
2. Applicability of provisions of section 14A read with Rule 8D of the Act
3. Chargeability of interest under sections 234A, 234B, and 234C of the Act

Issue 1: Tax Treatment of Amount Received for Redevelopment
The appellant received an amount for agreeing to the redevelopment of a society building. The dispute arose regarding the tax treatment of this amount. The Assessing Officer (A.O.) taxed only a portion of the amount received, considering it as income from other sources. The appellant contended that the amount should not be taxable as capital gain due to the nature of the transaction. The appellant cited various judicial pronouncements supporting their position. The Tribunal analyzed the case laws presented by the appellant and held that the amount received was not taxable as capital gain since there was no transfer of a capital asset involved. The Tribunal accepted the appellant's contentions and canceled the order of the Commissioner of Income Tax (Appeals) in this regard.

Issue 2: Applicability of Section 14A and Rule 8D
The A.O. disallowed a sum under Rule 8D of the Income Tax Rules, 1962, concerning the investment in shares and mutual funds by the appellant. The appellant argued that Rule 8D was wrongly applied as no specific expenditure was identified as incurred to earn exempt income. The appellant relied on various decisions supporting their stance. The Tribunal considered the case laws cited by the appellant and concluded that the disallowance under Rule 8D was unjustified in the absence of evidence of expenditure directly related to earning exempt income. The Tribunal referred to a decision of the jurisdictional High Court supporting the appellant's position. Consequently, the Tribunal accepted the appellant's arguments and allowed the appeal on this ground.

Issue 3: Chargeability of Interest under Sections 234A, 234B, and 234C
The A.O. had charged interest under sections 234A, 234B, and 234C of the Act. The appellant challenged this chargeability. However, the judgment did not provide specific details or arguments related to this issue. The Tribunal did not address this issue directly in the detailed analysis provided in the judgment. Therefore, the outcome or reasoning regarding the chargeability of interest under these sections was not explicitly discussed in the judgment.

In summary, the Appellate Tribunal ITAT Mumbai addressed multiple issues in the judgment. The tax treatment of the amount received for agreeing to redevelopment was analyzed, with the Tribunal ruling in favor of the appellant based on legal precedents. The applicability of Section 14A and Rule 8D was also scrutinized, leading to the Tribunal accepting the appellant's arguments due to the absence of identifiable expenditure for earning exempt income. However, the judgment did not provide detailed analysis or resolution regarding the chargeability of interest under sections 234A, 234B, and 234C.