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TMI Blog2013 (12) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... against impugned order dated September 21, 2008, passed by the Commissioner of Income-tax (Appeals)-III, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2005-06 on the following grounds of appeal : "1. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 32,12,510 on account of floor space index related to flat which was part of block of the assets and on which depreciation in the earlier year was claimed by the assessee. 2. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in deleting addition of Rs. 33,23,522 being the amount received by the assessee from the society on account of transfer of floor space index held by the Assessing Officer as dividend income from the society. 3. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in restricting disallowance to Rs. 2,540 as against Rs. 19,61,052 disallowed by the Assessing Officer 4. The appellant prays that the order of the Commissioner of Income-tax (Appeals) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of execution of agreement. In the books of account, the assessee has recognized the entire amount as the income following the mercantile system of accounting, however, in the return of income, the assessee claimed that cost on transfer of additional floor space index is not chargeable to tax in its hand in the light of the decision of the Mumbai Bench in the case of Jethalal D. Metha v. Deputy CIT reported in [2005] 2 SOT 422 (Mum). 4. In the course of assessment proceedings, the Assessing Officer, not only required the details of the transaction regarding acquisition of the sale but also asked the assessee to justify its claim for not being taxable under the provision of capital gains. In response, the assessee submitted that it had not transferred any building or land but a right by virtue of "Development Control Regulations, 1991, parting with which did not result into a capital gain on a transfer of asset. Moreover, there were no cost of acquisition ; hence, capital gain cannot be taxed. The Assessing Officer thereafter raised various other queries and the assessee filed its replies from time to time which have been elaborately discussed from pages 3 to 17 of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not attracted in such cases of transfer of transferable development rights. 6. With regard to the alternative addition on account of dividend, the Commissioner of Income-tax (Appeals) completely disagreed with the conclusion and the finding of the Assessing Officer and deleted the said addition after observing and holding as under : "2.7 I have perused the facts of the case and order of assessment. The Assessing Officer has categorically given a finding that amount received from the developer on account of floor space index is taxable in the hands of the society. This observation has been made towards the end of paragraph No. 9.2 of the assessment order. I am in complete agreement with the representative of the appellant that the society in the instant case is a mutual society. It was formed only to facilitate various operations in the society for the benefit of members. There is therefore a complete mutuality and consequently ratio of decisions of the hon'ble Supreme Court in the cases relied upon by the appellant are applicable to the receipt by the members. It is a different matter whether receipt is taxable in the hands of the society. The observation of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/M/2010 and 2650/M/2010 ; (xiv) Sambhaji Nagar Co-operative Soc. Ltd. v. ITO, I. T. A. No. 431/ Mum/2012 ; and (xv) Land Breez Co-operative Housing Society Ltd. v. ITO, I. T. A. No. 4130/Mum/2011 (since reported in [2013] 21 ITR (Trib) 467 (Mum). Relying upon these above decisions, he submitted that since there was no cost acquisition in the transfer of transferable development rights to the developer, there is no taxable capital gain either in the hands of the society or in the hands of the members, i.e., the assessee. 8. Regarding the third ground of appeal that the sale consideration cannot be taxed as dividend in the hands of the assessee, he submitted that the consideration had not flown from the society to the members, which is evident from the various clauses of the agreement entered into between the developer, society and the members, as the consideration was payable by the developers to the members for transfer of their respective entitlements. In fact, the members have paid the consideration themselves to the society. Alternatively, he pleaded that the transaction between the society and in its members cannot be brought within the ambit of taxation on the "princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lands on floor space index for public purposes. These transferable development rights can be transferred to other land owners or building for constructing of the building or additional floors. The plots on which those development rights could be used were termed as 'receiving plots' and on these plots in addition to whatever floor space index was originally available to the owner or lessor of such plots, additional floor space index can be allowed to the owner or lessor on using the transferable development rights contained in DCRs for the purpose of construction of the building. Thus, the transferable development rights is available to the owner/lessee of the land which surrenders to the Government and, therefore, the acquisition of such transferable development rights are to detriment the land surrendered by the owner/lessee, and such transferable development rights can be utilised on any plot vacant or already developed or by erection of additional storeys subject to the floor space index available in the Development Control Regulations. The contentions and reasoning of the Assessing Officer to the extent that the word 'property' not only includes tangible asset but also intang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In these cases, deep analysis of applicability of section 48, and B. C. Srinivasa Setty's case [1981] 128 ITR 294 (SC) has been done. For the sake of better appreciation, gist of few of them are incorporated hereinbelow : (i) The Tribunal in Jethalal D. Metha [2005] 2 SOT 422 (Mum), observed and held as follows : We may mention that as far Cadell Weaving Mill Co. P. Ltd. case [1996] 217 ITR (AT) 51 (Bom) is concerned, the Special Bench decision of the Tribunal has since been reversed by the hon'ble Bombay High Court in the judgment reported as Cadell Weaving Mill Co. P. Ltd. v. CIT [2001] 249 ITR 265 (Bom). Suffice to say that for this reason alone the Revenue's rejection of the assessee's claim, by relying upon Cadell Wvg. Mill Co. P. Ltd.'s case (supra) is no longer sustainable in law. We need not go further into this aspect of the matter. The only other reason of rejecting the claim that the assignment of additional floor space index is that, according to the authorities below, this right has cost of acquisition which consists of cost of purchase of plot, costs of getting the designs approved and costs of constructing the building. In this context, however, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rights on the assessee's plot. Similarly, the costs of plot and costs of construction are also not the cost of acquisition of these rights. What the assessee has transferred is not the plot or the building, but a right parting with which does not result in parting with land or building. The costs of obtaining BMC approval for the building plan can also not be said to be the costs of acquisition of these rights as these rights do not arise by virtue of getting these approvals but by the virtue of a legal right independent thereof. The law is trite, and there is no dispute on the said position, that when an asset has no cost of acquisition, the gains on sale or transfer of same cannot be brought to tax. The law laid down by the hon'ble Supreme Court in the case of B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) clearly holds so. For all these reasons, we are of the considered view that the receipts on sale of assignment of rights to receive transferable development rights are not liable to tax. The authorities below erred in law and on facts in holding to the contrary.' (ii) Further, the Tribunal in Maheshwar Prakash-2 Co-operative Housing Society Ltd. [2009] 313 ITR (AT) 103 (Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subclauses (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) reveals that cost of acquisition is to be taken at nil in those cases where the capital asset transferred is either goodwill of business or the trademark or a brand name associated with business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. (iii) In New Shailaja Co-operative Housing Society Ltd. [2009] 121 TTJ (Mum) 62, it was observed and held as follows : "Held, the assessee was the owner of the land and building and continued to remain the same even after transfer of the said capital asset. Thus, the cost of the land and building of the existing structure could not be attributed to the additional floor space index received by means of 1991 Rules. It is true that such right is a capital asset as per the provisions of section 2(14) but in order to compute capital gains apart from the existence of capital asset, there should be sale consideration accruing as a result of transfer of capital asset as well as the cost of acquisition of the asset along with the cost of any improvement thereto, if any. Section 48 sets out the mode of computation of income under the head capital gains by providing that the expenditure incurred wholly and exclusively in connection with the transfer of a capital asset along with the cost of acquisition and cost of any improvement, if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the ratio laid down in the aforesaid decisions and also as per our findings and observations given above, we hold that even though the transfer of transferable development rights amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head 'Capital gains' for the reason that there is no cost of acquisition in acquiring the right which has been transferred and computational mode given in section 48, thus fails in this case. Therefore, taxing of the receipt from transfer of transferable development rights under the head "Capital gains" by the Assessing Officer for a sum of Rs. 10,70,46,274, cannot be sustained. Accordingly, the same is directed to be deleted and order of the learned Commissioner (Appeals) is thus reversed." 11. Thus, in view of the consistent stand taken by the Tribunal in all the cases relied upon by learned counsel, we hold that even though the transfer of transferable development rights amounts to transfer of a capital asset, however, the same cannot be subjected to tax under the head "Capital gains" for the reason that there is no cost of acquisition in acquiring the flat which has been transferred and the compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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