2013 (9) TMI 475 - AT - Income Tax

Capital gain - Cost of acquisition - Additional floor space index (FSI) - Taxability in the hands of Co. Group housing society (CGHS) - DRA required the developer to pay a sum of Rs. 3.05 crore as corpus fund to the society, additional sum of Rs. 1.50 crore in lieu of additional FSI and Rs. 30 lakh as additional benefit on account of reduction in area for the reason of road widening, nallah etc. Thus, the society was to receive the total of 4.85 crore from the builder in terms of the agreement. - Assessee has argued that assessee retaining the complete control over the property and having not handed over the possession, there could not be any transfer u/s 2 (47) (v). - assessee has also argued that the capital gain that can be charged is only in respect of transfer of additional FSI to which the assessee was entitled. The assessee had not transferred nor was required to transfer the land of which the assessee was absolute owner and the building occupied by the members. The transfer could take place only in respect of additional FSI which the assessee had acquired as per the Government policy and there was no cost of acquisition involved. Therefore, it has been argued that no capital gain can be charged in such a case in view of the judgment of Maheshwar Prakash-2 Co-operative Housing Society Ltd. Versus Income-tax Officer, Ward 19(2)(4) 2008 (5) TMI 455 - ITAT MUMBAI Held that - The argument of assessee is supported by the decision of Mumbai bench of Tribunal in case of Jetha Lal D Mehta (2005 (1) TMI 595 - ITAT MUMBAI) and ACIT Vs. Geeta Devi Pasari (2006 (6) TMI 138 - ITAT BOMBAY-F) - the assessee retained full control over the existing building as well as the additional FSI available which had not been parted with. The assessee had received only a sum of Rs. 1.10 lakh from the developer which is stated to be reimbursement of expenses incurred by the assessee. In these circumstances we are of the view that no transfer had taken place in the year under consideration and, therefore, no capital gain can be charged in this year. The additional FSI became available to the assessee due to operation of development control regulation which did not involve any cost. - no capital gain could be charged on the ground that no cost of acquisition was involved in the additional FSI. - Decided in favor of assessee.

Summary

Issues Involved:
1. Taxability of capital gain on account of Development Rights Agreement (DRA).
2. Determination of the year of taxability for capital gain.
3. Computation of long-term capital gain.
4. Applicability of Section 50C of the Income Tax Act, 1961.
5. Transfer of additional Floor Space Index (FSI) and its cost of acquisition.

Detailed Analysis:

1. Taxability of Capital Gain on Account of Development Rights Agreement (DRA):
The primary issue in this case was whether the capital gain arising from the Development Rights Agreement (DRA) between the assessee (a cooperative housing society) and the developer was taxable. The assessee entered into a DRA with a developer for the redevelopment of its property, which included the demolition and reconstruction of existing buildings and the construction of new buildings using additional FSI. The developer was to pay the society Rs. 4.85 crore and provide additional benefits. The Assessing Officer (AO) held that the society was liable for long-term capital gain in the assessment year 2009-10, as the DRA was registered, and the society received an advance of Rs. 1.10 lakh.

2. Determination of the Year of Taxability for Capital Gain:
The AO concluded that the capital gain was taxable in the assessment year 2009-10 under Section 2(47)(v) of the Income Tax Act, which considers the transfer of immovable property when possession is allowed in part performance of a contract. The assessee argued that no transfer occurred as the possession of the property was not handed over to the developer, and no IOD and CC were obtained. The Tribunal found merit in the assessee's argument, noting that the developer had not obtained necessary approvals, and the old building was still occupied by the members. Therefore, no transfer of rights in the additional FSI occurred in the assessment year 2009-10.

3. Computation of Long-Term Capital Gain:
The AO computed the long-term capital gain at Rs. 538629592, considering the market value of the area constructed by the developer for the members, the sum receivable by the society, and additional parking space. The AO also included the income tax liability to be borne by the developer in the computation. The assessee disputed this computation, arguing that the consideration received or receivable belonged to the members and not the society. The Tribunal, having set aside the taxability of capital gain for the relevant year, did not delve into the computation of the capital gain.

4. Applicability of Section 50C of the Income Tax Act, 1961:
The AO noted that the capital gain was computed without prejudice to the application of Section 50C, which requires capital gain to be computed based on the stamp duty value. The assessee had filed a writ petition challenging the constitutional validity of Section 50C, which was dismissed by the High Court. The Tribunal did not address the applicability of Section 50C as it set aside the taxability of the capital gain for the relevant year.

5. Transfer of Additional Floor Space Index (FSI) and Its Cost of Acquisition:
The assessee argued that the additional FSI was received due to government regulations without any cost of acquisition, and thus, no capital gain could be charged, citing the Supreme Court judgment in B.C. Shrinivas Shetty. The Tribunal agreed with the assessee, noting that the additional FSI became available due to development control regulations and did not involve any cost. Therefore, no capital gain could be charged as there was no cost of acquisition.

Conclusion:
The Tribunal concluded that no transfer of rights in the additional FSI occurred in the assessment year 2009-10 as the developer had not obtained necessary approvals, and the old building was still occupied by the members. Consequently, no capital gain could be charged in the relevant year. The Tribunal set aside the order of the CIT (A) and did not address the computation of the capital gain or the applicability of Section 50C. The appeal of the assessee was allowed.