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TMI Blog2019 (7) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. Accordingly, there cannot be any incidence of capital gains. Hence the answer to question no. a) raised hereinabove, is decided in favour of the assessee. Even if the property is not transferred, then there is a right created by the Land Development Control Rules, 1991 attached with the land embedded in it. No detriment is created to cost of land by granting transfer of such rights. There is no element of cost in acquiring such right which had been transferred. Hence if there is no cost, there cannot be any element of capital gains. Since both the questions raised hereinabove are decided in favour of the assessee, the question of applicability of provisions of section 50C of the Act to the same does not arise at all. In any case, the provisions of section 50C of the Act can be applied only for transfer of land or building or both and not for Rights in Development Agreement‟. Reliance in this regard has been rightly placed on the co-ordinate bench of this tribunal in the case of Voltas Ltd vs ITO [ 2016 (10) TMI 936 - ITAT MUMBAI]. We find that the AO had placed reliance on the decision of Chaturbhujdas Dwarikadas Kapadia [ 2003 (2) TMI 62 - BOMBAY HIG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 that the State Bank of India staff Vaibhav CHS Ltd who is the owner of all that piece Parcel of free land and ground along with 57 Bungalows standing thereon bearing survey No 216, Hissa No 1(pt) 47(pt) corresponding CTS NO 1877 to 1880, 1880/ 1 to 4 total admeasuring 29,889/- Sq. Mts in Borivali. By the terms of agreement, the developers have to provide 57 flats and 144 car parking spaces to the existing members of the society. Further, the developer is free to utilize the extra FSI available by constructing and sale of building. The agreement for transfer of these development rights is valued at ₹ 34,69,55,000/- by the stamp duty authority whereas the agreement value is Rs Nil. The fact is that the transfer has occurred concerning unutilized FSI in the land and the transfer of land and building being capital assets of the society. Thus, this transaction appears to be covered by section 50C of the Income- Tax Act, 1961. It is also observed that the society has received the consideration ( on date of transfer of the capital asset being land and building ) at Nil which is less than the stamp value. The valuation of stamp duty authority has to be adopted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,69,55,000/-. As per Development Agreement, the Society authorized the Developer to demolish the said old Bungalow and reconstruct the new proposed building after utilizing the entire Floor Space Index (FSI) of the said property as well as maximum permissible Transferable Development Rights (TDR) FSI in respect of the said property. The payment of ₹ 40 lakhs to the member was revised to ₹ 52 lakhs besides a flat with 1300 sq.ft to each member along with two car parking areas vide Supplemental Development Agreement dated 29.4.2014. The Developer also agreed to pay each of the member rent for temporary alternate accommodation of ₹ 15,000/- per month, which was subsequently revised to ₹ 30,000/- per month and ₹ 1,50,000/- as refundable deposit. The Developer also agreed to provide Bank Guarantee of ₹ 50 Crores and also provide Solvency Certificate for a sum of ₹ 50 Crores. 3.2. After execution of the agreement, the Developer paid 50% of the amount agreed being ₹ 25 lakhs to the Society and the Developer had also paid ₹ 2,24,00,000/- to the different members of the Society. The Society was asked as to why capital gains sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld AO observed that the contention of the assessee society is not acceptable for the reason that the assessee was owner of the capital assets. He placed reliance on the development agreement which provided that Developer is entitled to construct new building by utilizing the entire FSI available to the said land arising from redevelopment. From this he observed that it is thus clear that rights and benefits available to the said land has been transferred to the developer for an agreed consideration. Thus as per the provisions of section 45 of the Act, the assessee is liable to pay capital gains earned on this transaction. With regard to the fact of not handing over the possession of the property as claimed by the assessee and consequently no transfer has taken place, is concerned, the ld AO observed that the same is not acceptable since the assessee has entered into agreement for transfer of property and right in the property and also received part payment as agreed vide the Development Agreement. Therefore, as per section 53A of the Transfer of Property Act, transfer of the property has taken place and assessee should have offered total receipts for taxation in the financial y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued to anyone will be treated as income in the hands of the society. It was again pleaded that there was no transfer of a capital asset by the assessee society. 5.3. The assessee pleaded further that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head capital gains‟ as opposed to assets in the acquisition of which no cost at all can be conceived. Reliance in this regard was placed on the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Sambhaji Nagar Coop. Hsg.Soc.Ltd reported in (2015) 370 ITR 325 (Bom). 5.4. In view of the aforesaid decision, the assessee society pleaded that :- a) Firstly, there is no transfer u/s 2(47) of the Act. b) Secondly, even if it is presumed that there is any transfer still it cannot be taxed under the head capital gain because there is no cost of acquisition and not capable of having a cost of acquisition. 6. The ld CITA deleted the addition made towards long term capital gains in the sum of ₹ 34,69,55,000/- by observing as under:- 3.7 I have carefully gone through the assessment order as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill the capital gain be computed. The AO has simply taken the value adopted by the Stamp Duty authorities as the full value of consideration. The full value of consideration is a kind of gross receipt which cannot be equated to capital gain. Any capital gain has to be computed in accordance with the provisions of section 48 and 49 of the IT Act 1961. In other words, capital gain has to be computed by making a reference to the cost of acquisition. In the assessment order the AO has not even attempted to compute the long term capital gain and has taken the full value of consideration itself as equivalent to long term capital gain. As per section 55(2) cost of acquisition of many intangible assets are taken to be nil. However, the right to receive additional FSI is not among the list of intangible assets mentioned in section 55(2). In the case of the appellant society the right to receive additional FSI on redevelopment is acquired automatically by virtue of development control regulations of 1991, Even though the above said right can be treated as capital asset the transfer of such capital asset cannot be subject to tax under the head capital gain for reason that there was no cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchaser would not result in the gains being assessed to capital gains. The Tribunal concluded that what the assessee sold was transferable development right received as additional floor space index as per the 1991 Rules. It was not a case of a sale of development rights already embedded in the land acquired and owned by the assessee. The Tribunal found that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible for additional floor space index. The land and the building earlier in the possession of the assessee continued to remain with it. Even after the transfer of the right or the additional floor space index, the position did not undergo any change. The Revenue could not point out any particular asset as specified in sub-section (2) of Section 55. The conclusion of the Tribunal was imminently possible on the facts and in the light of the legal-position-as noted by the language of Section 55(2). Similar view has been held by the jurisdictional ITAT Mumbai in the case of New Shailaja Cooperative Housing Society Ltd. v. I.T.O., (2009) 18 DTR(Mumbai) (trib.)385. In this case it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich emanated from the 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 as such even after the transfer of the right to additional FSI for ₹ 48.96 lakhs. The Departmental Representative could not point out any particular asset as specified in sub-s. (2) of s. 55, which would include the right to additional FSI. No capital gains could be charged on the transfer of the additional FSI by the assessee for sale consideration of ₹ 48.96 lakhs the reason that it has no cost of acquisition. 3.10 On similar facts same view has been expressed by the jurisdictional Mumbai ITAT in the cases of CIT v Land Breeze Chs Ltd.(2013) 21 ITR (Trib) 467 and ITO v. Lotia Court Chs Ltd. (2008) 12 DTK (Mumbai) (Trib) 396. Thus, as per the judicial principles coming out of the above judgements of the jurisdictional High court and ITAT it can be seen that even if it is assumed that there was a transfer of capital asset it would not lead to capital gain as there has been no cost in acquiring the asset. 3.11 The third question regarding the application of section 50C becomes ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Mumbai High Court which has come much later is more relevant. On the basis of the above discussions and after considering the totality of facts and principles of law I have come to a conclusion that there is no incidence of capital gain in the hands of the appellant society. Grounds of appeal no. 2,3,4,5 are allowed and consequently addition of ₹ 34,69,55,000/- stands deleted. 7. Aggrieved, the revenue is in appeal before us. 8. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of a) Deed of Confirmation cum Supplemental Agreement dated 5.7.2014 (enclosed in pages 1 to 52 of Paper Book) ; b) Supplemental Agreeemnt to the Agreement for Development dated 29.4.2014 (enclosed in pages 53 to 117 of Paper Book) ; c) Development Agreement dated 13.10.2010 (enclosed in pages 118 to 183 to Paper Book) ; d) Detailed list of litigation pending in the courts (enclosed in pages 184 to 187 of Paper Book) ; e) Letter addressed to JCIT, Range 32(30 dated 28.12.2015 (enclosed in pages 188 to 196 of Paper Book) ; f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is reproduced as under:- (47) transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.‖ 8.2.1. From the above definition, it coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or profession, 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 ; (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee- (A) becomes entitled to subscribe to any additional financial asset ; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B) the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation.-For the purposes of this clause,- (a) fair market value means,- (i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st day of January, 2018, the highest price of the capital asset quoted on such exchange on the said date: Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; (ii) in a case where the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st day of January, 2018, the net asset value of such unit as on the said date; (iii) in a case where the capital asset is an equity share in a company which is- (A) not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such exchange on the date of transfer; (B) listed on a recognised stock ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smaller amount, or (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived. In the case of the assessee, what is transferred is none of the above items. 8.3.1. We find that even if the property is not transferred, then there is a right created by the Land Development Control Rules, 1991 attached with the land embedded in it. No detriment is created to cost of land by granting transfer of such rights. There is no element of cost in acquiring such right which had been transferred. Hence if there is no cost, there cannot be any element of capital gains. Reliance in this regard is placed on the decision of the co-ordinate bench of this tribunal in the case of Maheswar Prakash -2 Co-operative Housing Society Ltd vs ITO reported in 118 ITD 223 (Mum Trib) dated 15.5.2008 wherein the head notes are as under:- Capital gains-Chargeability-Sale of additional FSI or right to construct additional floor-Bombay Municipal Corporation (BMC), in 1991, relaxed the Development Control Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, receipt on transfer thereof was capital receipt and could not be charged to tax as capital gains. Respectfully following the said decision, the question no. b) raised hereinabove is decided in favour of the assessee. 8.4. Since both the questions raised hereinabove are decided in favour of the assessee, the question of applicability of provisions of section 50C of the Act to the same does not arise at all. In any case, the provisions of section 50C of the Act can be applied only for transfer of land or building or both and not for Rights in Development Agreement‟. Reliance in this regard has been rightly placed on the co-ordinate bench of this tribunal in the case of Voltas Ltd vs ITO in ITA Nos. 5330 , 5331 and 5320/Mum/2009 for Asst Year 2005-06 dated 16.9.2016 wherein it was held that :- 3.6. Lastly, it was submitted without prejudice to the above submissions that in any case transaction of sale of Development Rights is not covered u/s 50C. In support of this argument, Ld. Counsel drew our attention on other allied provisions of the Act such as section 269A of the Act. Ld Counsel vehemently argued that on this ground itself addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; have been specifically included as per requirement of these sections. In other words, term 'land building' and 'rights therein' have been clearly understood and treated as independent from each other. Thus, the perusal of the definitions given in these sections when compared with section 50C shows that legislature was conscious about the proper expression to be used as per its intention, scope, object and purpose of the section 50C, wherein it has been expressly mentioned that capital asset should be 'land or building or both'. It has not been mentioned that any type of 'rights' shall also be included in the definition of capital assets to be transferred by an assessee. 3.11. The provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, while 12 Voltas Ltd. interpreting deeming provisions neither any words can be added nor deleted from language used expressly. We should apply the 'Rule of Strict Interpretation' as well as 'Rule of Literal Construction' while understanding the meaning and scope of deeming provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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