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TMI Blog2008 (5) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee for the purpose of constructing additional floors in its own building. Therefore, such right had no inherent quality being available on expenditure of money and therefore, cost of such asset could not be envisaged. Hence, the view taken by us is fully justified by the decision of the Apex Court in the case of B.C. Shrinivasa Shetty [ 1981 (2) TMI 1 - SUPREME COURT] . Therefore, the right acquired by the assessee did not fall within the ambit of section 45 of the Act itself. The amended provisions are also not applicable since such right is not covered by any of the assets specified in section 55(2)( a ) of the Act. Therefore, applying the decision of Apex Court in the case of B.C. Shrinivasa Shetty (supra) as well as the decision of the co-ordinate Bench in the case of Mehtal D. Mehta [ 2005 (1) TMI 595 - ITAT MUMBAI] , the issue is decided in favour of the assessee. The order of the CIT(A) is, therefore, set aside and consequently, the AO is directed to delete the addition from the total income. Since the assessee succeeds on the main ground that receipt is capital receipt not chargeable to tax, we need not adjudicate the other issues raised by the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. He also referred to the provisions of definition clause ( 47 ) of section 2 to point out that relinquishment or extinguishment of any right in the property amounts to transfer of the property. He also referred to provisions of section 2( 47 )( v ) in support of the proposition that the transaction amounted to transfer within the meaning of section 53A of the Transfer of Property Act, 1882 on account of part performance made between the parties. The Assessing Officer was also of the view that income accrued to the assessee in the year under consideration i.e., on the date of agreement itself since no more act was required to be done on the part of the assessee. It was further observed that the terms and conditions of the agreement were irrevocable. 4. In response to the above show-cause notice, the assessee replied vide letter dated 27-11-2006 wherein it was contended - ( i ) that as there was no cost of acquisition there was no chargeable capital gain to the assessee; ( ii ) that no transfer took place in the year under consideration. In this connection, he referred to clauses 2 and 3 of the agreement for highlighting the uncertainty of the area; ( iii ) that the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance was placed on the Hon ble Supreme Court judgment in the case of Escorts Farms (Ramgarh) Ltd. v. CIT [1996] 222 ITR 509 . It was also observed by him that the Hon ble Supreme Court judgment in the case of B.C. Shrinivasa Shetty ( supra ) related to the transfer of goodwill which was quite different in nature of the asset in the present case. It was also held by him that in view of the amendment made by the Legislature, the cost of acquisition could be taken as nil. Consequently, the appeal of the assessee was dismissed. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 7. The learned counsel for the assessee has reiterated the submissions made before the lower authorities. In brief, four submissions have been made by him viz.; ( i ) there is no transfer of asset since assessee had no transferable development rights and the same was to be obtained by the builder; ( ii ) if there is a transfer it was not effected in the current year as certain formalities had to be complied with; ( iii ) no capital gain could be worked out as there was no cost of acquisition in respect of the right obtained by the assessee under the Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em could be solved only by increasing the FSI. After considering the representations from the private land owners, the Government decided to grant Transferable Development Rights to the land owners in Mumbai city as well as suburbs who agreed to surrender their land to the Government for public development, which could be used by the land owners surrendering their lands on any other land or building to the north of the land surrendered. However, such right could not in any circumstances be utilised in the island city of Mumbai. In view of such decision, Regulation No. 34 was passed by the Bombay Municipal Corporation effective from 25-3-1991 which reads as under : "In certain circumstances, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of land in the form of Transferable Development Rights (TDR). These rights may be made available and be subject to the regulations in Appendix VII hereto." Regulation Nos. 1, 2 and 3 of Appendix VII of Development Control Regulation for Greater Bombay, 1991 provides the circumstances under which the development rights were made available to the owners or lessee of the plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any plot to the north of the plot in which TDR is originated. Regulation No. 13 provides that DRC may be used on one or more plots of land whether vacant or already developed or by erection of additional storeys or any other manner consistent with the Regulations but not to exceed the built up area of FSI higher than that prescribed in Regulation 14 of the Appendix. Regulation 14 which is relevant for disposal of this appeal reads as under : "14. The FSI of a receiving plot shall be allowed to be exceeded by not more than 0.4 in respect of a DR available in respect of reserved plot as in this Appendix and up to a further 0.4 in respect of a DR available in respect of land surrendered for road-widening or construction of new roads according to sub-regulation (1) of Regulation 33." 9. The perusal of the above scheme shows that TDR is available to the owner or lessee of a land which is surrendered to the Government and, therefore, the acquisition of such TDR is detriment to the land surrendered by the owner or lessee. Therefore, it can be said that the cost of the TDR is equal to the cost of the land surrendered. However, such TDR can be utilised on any plot vacant or already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the Hon ble Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594. In view of this legal position, it is held that the right to construct the additional storeys on account of increase in FSI by virtue of Regulation No. 14 of the Appendix VII to DCR, 1991 was a capital asset held by the assessee. Therefore, assignment of such right in favour of the developers amounted to transfer of capital asset. The contention of the counsel for the assessee that there cannot be any transfer without having TDR is without force since right to construct additional floors and TDR are different and distinct rights which can be transferred for a consideration. 11. Now, the moot question which arises for our consideration is whether the sum of Rs. 42 lakhs received by the assessee can be treated as long-term capital gain chargeable to tax under the Act. The contention of the learned counsel for the assessee is that the right to construct additional floors was acquired by the assessee free of cost and automatically by virtue of DCR, 1991 and, therefore, the computational provisions under section 48 fail and consequently no capital gain can be said to arise under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The contention of the revenue that the aforesaid decision of the Tribunal is not applicable after the amendment of sub-section (2) of section 55 of the Act is also without force. Section 55(2)( a ) of the Act which is relevant with reference to the contention of the revenue reads as under: "(2) For the purposes of sections 48 and 49, "cost of acquisition", ( a )in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours, ( i )in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and ( ii )in any other case [not being a case falling under sub-clauses ( i ) to ( iv ) of sub-section (1) of section 49], shall be taken to be nil." Clause, ( aa ) and clause ( ab ) of section 55(2) deal with the case of shares or securities and, therefore, the same are not relevant for disposal of this appeal and, therefore, the same are not reproduced here. The perusal of section 55(2)( a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, that such right embedded in the land, there was no detriment to the cost of land by granting such right on the assessee-society. On the contrary, price of the land had increased because of the additional right made available to the assessee-society. Therefore, the theory applied by the Hon ble Supreme Court in the case of bonus shares cannot be applied to the present case. 15. Before parting with this order, it would be appropriate to mention that the decision of the Hon ble Bombay High Court in the case of CIT v. Trikamal Maneklal [1987] 168 ITR 733 1 was relied upon by the learned Sr. DR for the proposition that where assessee acquires the asset without cost then cost of acquisition should be taken at nil. It was also pointed out by him that such decision was taken after considering the decision of the Apex Court in the case of B.C. Shrinivasa Shetty ( supra ). On the other hand, the learned counsel for the assessee has submitted that the decision of the Apex Court in the case of B.C. Shrinivasa Shetty ( supra ) squarely applies to the present case. Therefore, it would be appropriate to consider the impact of both the judgments and then find out which judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of being available on the expenditure of money to a person seeking to acquire it. The Hon ble Supreme Court excluded the goodwill from the scope of section 45 since in a newly commenced business, it was self generated asset and its cost could not be envisaged in the case of such assessee. Since shares were not such an asset, it could not be excluded from the scope of section 45 of the Act in the case before them. Consequently, it was held that cost of shares received by the assessee in the common hotchpot of HUF should be taken at nil. 17. Let us now consider the decision of the Apex Court in the case of B.C. Shrinivasa Shetty ( supra ) to ascertain the scope of section 45 of the Act. In that case, the question referred to the High Court for its opinion was as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no capital gains can arise under section 45 of the Income-tax Act, 1961, on the transfer by the assessee-firm of its goodwill to the newly constituted firm?" Their Lordships, firstly, held that the goodwill is an asset of the business but posed a question whether such asset is an asset contemplated by sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money to a person seeking to acquire it. On the other hand, if the asset is such that it has no inherent quality of being available on expenditure of money then it would be outside the scope of section 45 of the Act. It is because of such test, their Lordships observed that goodwill being self generated asset in a newly commenced business, it did not possess such inherent quality and therefore, fell outside the scope of section 45 and therefore, its transfer was not subject to tax under the Income-tax Act. 18. The above decision of the Apex Court does not lay down that in each and every case where there is no cost to the assessee, capital gain cannot be computed. According to this decision, the computational provisions fail where it is not possible to envisage the cost to a person seeking to acquire it considering the nature of character of the asset. In such cases, the asset itself does not fall within the ambit of section 45. This is what is explained by the Hon ble Bombay High Court in the case of Trikamlal Maneklal ( supra ). If the asset has inherent quality of being available on expenditure of money and the assessee has acquired it without cost then cost of acquisition ..... 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