2024 (4) TMI 988 - HC - Income Tax

LTCG - Receipt of additional amount towards Transferable Development Rights (TDR) - treatment to receipt of consideration the appellant ceased to be the owner of the property - compensation received for settlement of dispute in respect of allotment of Flat - HELD THAT - If the Revenue had serious doubts on the genuineness of the letter or the understanding as reflected in the letter or the intention of the parties, it should have summoned the developer to confirm the same. It does not appear that the Revenue had summoned the developer or tried to find the veracity of the letter. We should also note that admittedly the letter is signed by the developer. The genuineness of the letter is also confirmed by the fact that a substantial amount has also been paid to assessee . As per the letter, the developer committed to assessee that if in future the developer was able to obtain additional TDR and load it on the property being developed, an extra compensation at Rs. 1000/- per sq. ft. of the TDR utilised for additional construction of floors will be paid to assessee. In our view, the development agreement dated 29th September 1992 and the commitment letter also dated 29th September 1992 should be read as one agreement. The amount paid should be considered as payment under the development agreement itself. Assessee s arguments that even the Government records showed assessee to be the owner of the property and there has been no transfer of the capital asset has been dismissed by the ITAT by saying that it takes time to get names changed due to which owner continued in such official records or simply the name of assessee might have continued. The agreement reflects the intention of the parties to the agreement. Neither the developer has come forward and told the Assessing Officer nor was he called to come and depose that the intentions of the parties were different from what assessee informed the Income Tax Department. Therefore, in our view, the ITAT was not correct in confirming the view of the Assessing Officer that this amount of should be treated as income from other sources. This amount should also be treated as consideration being paid for the developmental rights entered into on 29th September 1992 and treated as LTCG to be assessed in the year the amount was received. Assessee, we are informed, has paid LTCG on this amount in Assessment Year 1997-1998.

Summary

Issues involved:
The judgment involves the interpretation of a development agreement under Section 260A of the Income Tax Act, 1961, regarding the ownership of property, taxation of compensation received, and the treatment of additional Transferable Development Rights (TDR) as taxable income.

Issue 1: Interpretation of Development Agreement
The appellant challenged an order by the Income Tax Appellate Tribunal (ITAT) regarding the ownership of property after receiving consideration. The dispute centered on whether the appellant ceased to be the owner of the property after a development agreement dated 29th September 1992. The Assessing Officer contended that the property was already transferred, and the appellant no longer owned it, leading to the taxation of the amount received as income from other sources. However, the High Court disagreed, emphasizing the commitment letter from the developer promising additional compensation for TDR utilization. The Court considered the development agreement and commitment letter as one agreement, concluding that the amount received should be treated as consideration for developmental rights, not income from other sources.

Issue 2: Taxation of Compensation Received
The dispute also involved the taxation of Rs. 1,00,92,750/- received as compensation for settling a dispute related to the allotment of a flat. The appellant argued that this amount should be considered a capital receipt and not taxable. The Commissioner of Income Tax (Appeals) (CIT(A)) classified this amount as Short-Term Capital Gain (STCG) due to its contingent nature, based on the developer's acquisition of Transferable Development Rights (TDR). The High Court concurred with the CIT(A)'s reasoning, stating that the enforceable right to the compensation only arose when the TDR was utilized, making it a short-term capital asset. The Court upheld the taxation of this amount as STCG, considering the contingent nature of the payment.

Issue 3: Treatment of Additional Transferable Development Rights (TDR)
The final issue revolved around the treatment of an additional sum of Rs. 1,00,17,750/- received by the appellant for TDR utilization. The Assessing Officer questioned the inclusion of this amount as Long-Term Capital Gain (LTCG), arguing that the property had already been transferred, and the appellant no longer owned it. The ITAT upheld the Assessing Officer's view, treating the amount as income from other sources. However, the High Court disagreed, emphasizing the commitment letter from the developer and the intention of the parties in the development agreement. The Court concluded that the amount was consideration for developmental rights and should be treated as LTCG, assessed in the year of receipt.

Separate Judgement:
The High Court, comprising K.R. Shriram and Dr. Neela Gokhale, JJ., delivered an oral judgment addressing the appellant's appeal against the ITAT's order. The Court analyzed the development agreement, commitment letter, and the nature of the payments received to determine the tax implications of the transactions. Ultimately, the Court ruled in favor of the appellant, rejecting the Assessing Officer's and ITAT's views and directing the treatment of the amounts received as consideration for developmental rights, taxable as Long-Term Capital Gain.