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TMI Blog2014 (12) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... on of law. That is formulated at page 7 of the Appeal paper book. Mr. Malhotra would submit that the gains are derived from the sale of Transferable Development Right (TDR) of the Cooperative Housing Society which is a property by itself. In such circumstances, the Tribunal should have sustained the order of the Commissioner and that of the Assessing Officer. That should have been sustained because the Tribunal ought to have noted that this Cooperative Housing Society planned a reconstruction of the building without involving any builder. That was in the year 1994. In the year 1995, the construction of the new building was in execution and the Society was eligible for a Floor Space Index (FSI) of 2. The construction was carried out and completed. Thereafter, FSI of 0.5 was generated by the Society's property/plot and it decided to sell it. That was sold to one Uttam Kamat under an agreement dated 1st June, 2006 for a total consideration of Rs. 2,23,25,157/-. This amount has been held by the Assessing Officer to be chargeable to tax as income under the head "long term capital gains" in the hands of the Assessee in the year under Appeal. That was confirmed by the Commissioner. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch circumstances, this is a transfer of capital asset held by the Society, which is chargeable to tax. 7) The Commissioner of Income Tax, in confirming this finding of the Assessing Officer, distinguished the case of New Shailaja Cooperative Housing Society. In the case under consideration, the Society was eligible for FSI of 2.5. That the Society only consumed 2 FSI out of its eligible FSI and not additional FSI. It is only a sale of unconsumed FSI. This is not a case that extra FSI had accrued because of change in law. The TDR has been granted as per law existed at the time of reconstruction of the Assessee's building/property. The letter dated 17th September, 2003 was relied upon. That is how the sale consideration of TDR was taxable as long term capital gains in the hands of the Assessee. 8) The Tribunal noted this aspect and concluded that while it is true that the Assessing Officer invoked section 50C and computed these gains, but the coordinate Bench decision in the case of New Shailaja Cooperative Housing Society Ltd, involved similar controversy and the Tribunal concluded that the sale of TDR does not give rise to any capital gains chargeable to tax. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning as in clause (r) of section 2 of the Wealthtax Act, 1957 (27 of 1957). Explanation (2) For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purpose of the payment of stamp duty. (3) Subject to the provisions contained in subsection (2), where the value ascertained under subsection (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in subsection (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. S. 55 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be nil; (b) in relation to any other capital asset (i) where the capital asset become the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in subsection (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee; (iii) where the capital asset became the property of the assessee on the distribution of the capital asset of a company on its liquidation and the assessee has been assessed to income tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (iv) ***** (v) where the capital asset, being a share or a stock of a company, became the property of the assessee on (a) the consolidation and division of all or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 294 and the amendment to section 55(2) of the Income Tax Act and held that the Assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax. The Department's Appeal to the High Court was dismissed and that is how it approached the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble Supreme Court held as under: "(8) In 1981 this court in CIT v. B. C. Srinivasa Shetty (1981) 128 ITR 294; (1981) 2 SCC 460 held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as "never intended by section 45 to be the subject of the charge". In that case, the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied in relation to the assessment year 199596 and subsequent years. But till that amendment in 1995, and therefore covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not in fact be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that B. C. Srinivasa Shetty's case (1981) 182 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary. (12) We agree. A tenancy right is acquired with reference to a particular date. It is also possible that it may be acquired at a cost. It is ultimately a question of fact. In A. R. Krishnamurthy v. CIT (1989) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only if it is not chargeable to incometax under any of the heads specified in section 14, items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56. 16) There is no dispute that a tenancy right is a capital asset the surrender of which would attract section 45 so that the value received would be a capital receipt and assessable if at all only under item E of section 14. That being so, it cannot be treated as a casual or nonrecurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. [See S. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 ITR 700 (SC)] (17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or nonrecurring receipt u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that conclusion. The Tribunal's conclusion arrived at in the case of New Shailaja Cooperative Housing Society Ltd., is based on the Hon'ble Supreme Court's decision in the case of B. C. Srinivasa Shetty (supra). The Tribunal concluded that the Assessee had not incurred any cost of acquisition in respect of the right which emanated from 1991 Rules, making the Assessee eligible to additional FSI. The land and building earlier in the possession of the Assessee continued to remain with it. Even after the transfer of the right or the additional FSI, the position did not undergo any change. The Revenue could not point out any particular asset as specified in subsection (2) of section 55. The conclusion of the Tribunal is imminently possible and in the given facts. That is also possible in the light of the legal position as noted by language of section 55(2) and the Judgment of the Hon'ble Supreme Court, which is in the field. 12) We have made a reference to all these materials only because Mr. Malhotra tried to persuade us to conclude that this aspect is also specified in subsection (2) of section 55 and that is how the Tribunal's view is vitiated by error of law ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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