The Pr. Commissioner Of Income Tax-17 v. Shri Manohar H. Kakwani

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 822 OF 2016 The Pr. Commissioner of Income Tax-17 vsShri Manohar H. Kakwani ...Appellant ...Respondent. ..... Mr P.C.Chhotaray for the Appellant. Dr. K. Shivram, Sr. Counsel a/w Mr Rahul Hakani a/w Ms Neelam Jadhav for the Respondent. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ. JANUARY 07, 2019. P.C. : 1.This appeal is filed by the Revenue to challenge thejudgment of the Income Tax Appellate Tribunal (“ITAT”for short)dated 9[th] October, 2016. The following questions are presented for ourconsideration. “(A)Whether on the facts and in the circumstances of the case and in law, theHon'ble Income Tax Appellate Tribunal was justified in holding that thecompensation received by the assessee from transfer of development rightsis not taxable under the provisions of long term capital gains in the Income-Tax Act?Hon'ble Income Tax Appellate Tribunal was justified in holding that thecompensation received by the assessee from transfer of development rightsis not taxable under the provisions of long term capital gains in the Income-Tax Act? (B)Whether on the facts and in the circumstances of the case and in law, theHon'ble Income Tax Appellate Tribunal was justified in holding that therewas no cost of acquisition of the TDR when there was a cost of acquisitionand when the assessee himself had furnished the cost of acquisition andcomputation of the long term capital gains to the Assessing Officer inHon'ble Income Tax Appellate Tribunal was justified in holding that therewas no cost of acquisition of the TDR when there was a cost of acquisitionand when the assessee himself had furnished the cost of acquisition andcomputation of the long term capital gains to the Assessing Officer in Pg 1 of 7 course of the hearing ? (C)Whether on the facts and in the circumstances of the case and in law, theHon'ble Income-tax Appellate Tribunal was justified in not adjudicating onthe other very important component of the transaction, involving exemptionunder section 54 of the Act and substantial enhancement made by theCIT(A), discussed elaborately by the CIT(A) in his order, and therefore,giving substantial relief to the assessee without any discussion on thoseissues?”Hon'ble Income-tax Appellate Tribunal was justified in not adjudicating onthe other very important component of the transaction, involving exemptionunder section 54 of the Act and substantial enhancement made by theCIT(A), discussed elaborately by the CIT(A) in his order, and therefore,giving substantial relief to the assessee without any discussion on thoseissues?” 2The brief facts are as under- While scrutinizing the return filed by the assessee for theAssessment Year (“A.Y.”for short), the Assessment Officer (“A.O.”for short) questioned the assessee for not offering a sum of Rs.3.80Crores to capital gain. Rejecting the assessee's contention, the A.O.taxed such receipt as a capital gain in the hands of the assessee aftergranting statutory adjustments. This question arises on thebackground of the assessee having sold the development rightsreferred to as TDR for the sale consideration of Rs.3.80 Crores. Thecontention of the assessee was that in absence of any cost ofacquisition of the development right, the capital gain tax cannot becharged. 3In appeal, after one round, the Commissioner proposed toenhance the assessment. The Commissioner was of the opinion that,not only the said consideration of Rs.3.80 Crores but also the value of3 ½ fats which the builder had provided to the assessee would invite Pg 2 of 7 capital gain tax. 3In appeal, after one round, the Commissioner proposed toenhance the assessment. The Commissioner was of the opinion that,not only the said consideration of Rs.3.80 Crores but also the value of3 ½ fats which the builder had provided to the assessee would invite Pg 2 of 7 capital gain tax. 4The Commissioner (Appeals) rejected the assessee'scontention that in absence of any cost of acquisition of thedevelopment rights, capital gain tax cannot be levied. He alsorejected the assessee's contention that 3 ½ fats were not provided bythe builder to the assessee by way of exchange as part of saleconsideration. The contention of the assessee was that the FSI of5580 sq.ft. which was in relation to the said constructed 3 ½ fats wasnever transferred to the builder and the assessee had paid cost ofRs.80 Lacs for such construction. The Commissioner further was ofthe opinion that the value of these fats which he estimated at Rs.7Crores was also part of the assessee's capital gain in addition to thesum of Rs.3.80 Crores received by him. 5The Tribunal was of the opinion that in absence of the costof acquisition of the development rights, the TDR cannot be taxed as acapital gain. The Tribunal referred to and relied on a decision ofDivision Bench of this Court in the case of Sambhaji Nagar Co-op.Hsg. Society Ltd.reported in (2015) 370 ITR 325 (Bom)andaccepted the assessee's contention. In this view of the matter, theTribunal did not find it necessary to examine the subsequent questionof transfer of constructed area by the builder to the assessee. Pg 3 of 7 10.itxa.822.2016.doc 6Appearing before us the Counsel for Revenue vehementlycontended that the Tribunal has committed an error in applying thedecision of this Court in the case of Sambhaji Nagar Co-op. Hsg.Society Ltd.(supra) since the facts are different. He relied on adecision of the Tribunal in the case of Chiranjeev Lal Khanna Vs.ITOin support of his contentions. He submitted that the Tribunalcommitted an error in not examining the question of transfer of 3 ½fats to the assessee. 7On the other hand, learned counsel for the assesseeopposed the appeal contending that there has been consistent view ofthis Court starting from the decision in the case of Sambhaji NagarCo-op.Hsg. Society Ltd.(supra) that upon transfer of thedevelopment rights capital gain tax cannot be levied. He pointed outthat subsequently several appeals on this ground have beendismissed. Learned counsel further submitted that the Tribunal incase of Chiranjeev Lal Khanna Vs. ITO (supra) was considering thecase where the assessee had transferred the land and the building tothe developer and it was not the case where transfer was only ofadditional construction rights. In the present case the assessee hadnot transferred the land or the building but only the right of furtherdevelopment accruing by virtue of Development Control Rules. Pg 4 of 7 10.itxa.822.2016.doc 8Having heard learned counsel for parties and havingperused the documents on record, we have no hesitation in coming tothe conclusion that the entire issue is squarely covered by theJudgment of Division Bench of this Court in the case of SambhajiNagar Co-op.Hsg. Society Ltd.(supra). In the said decision theCourt after referring to and relying on a decision of the SupremeCourt in the case of CITVs. B.C. Srinivasa Setty (1981) 128 ITR294 (SC) and in case of Union of India Vs Cadell Weaving Mill Co.P. Ltd.Reported in (2005) 273 ITR 1 (SC)held and observed asunder:- Pg 4 of 7 10.itxa.822.2016.doc 8Having heard learned counsel for parties and havingperused the documents on record, we have no hesitation in coming tothe conclusion that the entire issue is squarely covered by theJudgment of Division Bench of this Court in the case of SambhajiNagar Co-op.Hsg. Society Ltd.(supra). In the said decision theCourt after referring to and relying on a decision of the SupremeCourt in the case of CITVs. B.C. Srinivasa Setty (1981) 128 ITR294 (SC) and in case of Union of India Vs Cadell Weaving Mill Co.P. Ltd.Reported in (2005) 273 ITR 1 (SC)held and observed asunder:- “11. Thus, the conclusion of the Hon'ble Supreme Court is that an assetwhich is capable of acquisition at a cost would be included within theprovisions pertaining to the head "Capital gains" as opposed to assetsin the acquisition of which no cost at all can be conceived. In thepresent case as well, the situation was that the FSI/TDR wasgenerated by the plot itself. There was no cost of acquisition, whichhas been determined and on the basis of which the Assessing Officercould have proceeded to levy and assess the gains derived as capitalgains. It may be that sub-section (2) of section 55 clause (a) havingbeen amended, there is a stipulation with regard to the tenancy rights.However, even in the case of tenancy right, the view taken by theHon'ble Supreme Court, after the provision was substituted witheffect from 1[st] April, 1995, is as above. The further argument is thatthe tenancy rights now can be brought within the tax net and in thepresent case the asset or the benefit is attached to the property. It iscapable of being transferred. All this may be true but as the Hon'bleSupreme Court holds it must be capable of being acquired at a cost orthat has to be ascertainable. In the present case, additional FSI/TDR iswhich is capable of acquisition at a cost would be included within theprovisions pertaining to the head "Capital gains" as opposed to assetsin the acquisition of which no cost at all can be conceived. In thepresent case as well, the situation was that the FSI/TDR wasgenerated by the plot itself. There was no cost of acquisition, whichhas been determined and on the basis of which the Assessing Officercould have proceeded to levy and assess the gains derived as capitalgains. It may be that sub-section (2) of section 55 clause (a) havingbeen amended, there is a stipulation with regard to the tenancy rights.However, even in the case of tenancy right, the view taken by theHon'ble Supreme Court, after the provision was substituted witheffect from 1[st] April, 1995, is as above. The further argument is thatthe tenancy rights now can be brought within the tax net and in thepresent case the asset or the benefit is attached to the property. It iscapable of being transferred. All this may be true but as the Hon'bleSupreme Court holds it must be capable of being acquired at a cost orthat has to be ascertainable. In the present case, additional FSI/TDR is Pg 5 of 7 Pg 5 of 7 generated by change in the D. C. Rules. A specific insertion wouldtherefore be necessary so as to ascertain its cost for computing thecapital gains. Therefore, the Tribunal was in no error in concludingthat the TDR which was generated by the plot/property/land and cameto be transferred under a document in favour of the purchaser wouldnot result in the gains being assessed to capital gains. The factualbackdrop is noted by the Tribunal in para 3 and thereafter the rivalcontentions. The Tribunal concluded and relying upon its order passedin two other cases that what the Assessee sold was TDR received asadditional FSI as per the D. C. Regulations. It was not a case of saleof development rights already embedded in the land acquired andowned by the Assessee. The Tribunal's conclusion and further to befound in para 11 is based on its view taken in the case of NewShailaja Co-operative Housing Society Ltd. The Tribunal hasreproduced that conclusion. The Tribunal's conclusion arrived at in thecase of New Shailaja Co-operative Housing Society Ltd., is based onthe Hon'ble Supreme Court's decision in the case of B. C. SrinivasaShetty (supra). The Tribunal concluded that the Assessee had notincurred any cost of acquisition in respect of the right which emanatedfrom 1991 Rules, making the Assessee eligible to additional FSI. Theland and building earlier in the possession of the Assessee continued toremain with it. Even after the transfer of the right or the additionalFSI, the position did not undergo any change. The Revenue could notpoint out any particular asset as specified in sub-section (2) of section55. The conclusion of the Tribunal is imminently possible and in thegiven facts. That is also possible in the light of the legal position asnoted by language of section 55(2) and the Judgment of the Hon'bleSupreme Court, which is in the field.” 9We notice that this view was followed in later appealspresenting similar questions. In common order dated 24[th] April, 2015 Pg 6 of 7 10.itxa.822.2016.docin Income Tax Appeal No. 1607 of 2013 and connected appeals, theCourt had dismissed Revenue's appeals on same issue. The decisionof the Tribunal in the case of Chiranjeev Lal Khanna Vs. ITO(supra), in any case, would not persuade us to take a view differentfrom a decision of Division Bench of this Court. Even otherwise ascorrectly pointed out by respondent's counsel, it was the case inwhich the society had transferred the land and the building and notmere further development rights. 10Taxing the value of 3 ½ fats as a capital gain, the Revenuehas proceeded on completely erroneous basis. The assessee hadwithheld portion of available FSI for 3 ½ fats which was constructedby the builder at the cost of the assessee and the fats were thusacquired by the assessee. All this was part of argument between theassessee and the builder. In any case, once we hold that any receiptfrom transfer of TDR in the present case cannot be taxed as a capitalgain and this question would itself become academic. In the result,Tax Appeal is dismissed. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J. ) Pg 7 of 7