2020 (4) TMI 562 - AT - Income Tax

Capital gain - transfer of development rights to the developers - assessee has given the developing right to the housing society - assessee executed agreement with Developers for re-development of the existing building on the said property - whether assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in section 55(2)? - HELD THAT - The facts of the present case is quite similar to the facts of the case New Shailaja Co-operative Housing Society Ltd 2008 (12) TMI 442 - ITAT MUMBAI wherein also the assessee acquired the land in the year 1972 and constructed the building and subsequently by virtue of Regulation 33(7) of the Development Control Regulations of the Municipal Corporation of Greater Bombay, 1991 (DCR). The assessee became entitled to the additional FSI. The assessee nowhere incurred any cost for the execution of the additional FSI, therefore, the consideration nowhere considered as short/long term capital gain. This controversy has also been adjudicated by Hon ble High Court in the case of CIT-18 Vs. Sambhaji Nagar Co-operative Hsg Society Ltd 2014 (12) TMI 1069 - BOMBAY HIGH COURT . Thus finding of the CIT(A) is not justifiable, therefore, we set aside the same and delete the addition - Decide issue in favour of the assessee.

Summary

Issues:
1. Addition of STCG as taxable capital gain under Section 50C.
2. Interpretation of provisions regarding transfer of development rights by a Co-operative Housing Society.

Analysis:

Issue 1: Addition of STCG as taxable capital gain under Section 50C
The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Short Term Capital Gain (STCG) as taxable capital gain. The Assessing Officer (AO) observed that the assessee violated Section 50C of the Income Tax Act, 1961, leading to the addition of STCG amounting to ?3,07,86,423. The CIT(A) partly allowed the claim but upheld the addition of STCG. The assessee contended that the transfer of development rights to a developer did not give rise to any capital gains chargeable to tax. The representative of the assessee cited a jurisdictional High Court decision to support this argument. The Department's representative, however, supported the CIT(A)'s order. After examining the facts and arguments, the Tribunal found that the CIT(A)'s decision was not justifiable. Citing similar cases and legal precedents, the Tribunal set aside the CIT(A)'s finding and deleted the addition, ruling in favor of the assessee against the revenue.

Issue 2: Interpretation of provisions regarding transfer of development rights by a Co-operative Housing Society
The case involved the transfer of development rights by a Co-operative Housing Society to a developer for construction purposes. The society had acquired land in 1972 and subsequently became entitled to additional Floor Space Index (FSI) under the Development Control Regulations. The society transferred the Transferable Development Rights (TDR) to the developer for constructing flats. The assessee argued that the consideration received was not a capital gain as no cost of acquisition was incurred for the additional FSI. Citing relevant legal provisions and precedents, including decisions by the ITAT and the High Court, the Tribunal concluded that no capital gains could be charged on the transfer of additional FSI due to the lack of cost of acquisition. The Tribunal found similarities with previous cases and ruled in favor of the assessee, setting aside the CIT(A)'s decision and allowing the appeal.

In conclusion, the Tribunal's judgment addressed the issues of STCG addition and the interpretation of provisions related to the transfer of development rights by a Co-operative Housing Society. The decision highlighted the importance of considering the cost of acquisition in determining taxable capital gains and relied on legal precedents to support the ruling in favor of the assessee.