Bombay High Court
Controversy existed between Cooperative Housing Societies and Income Tax department regarding taxability of the amounts that societies receive from developer as compensation to repair buildings in form of corpus, rent and larger area. With the promulgation of the Development Control Rules, 1991 (DCR), the Assessee Society acquired right of putting up additional construction through TDR. Instead of utilising this right itself, the Society decided to transfer thesame to a Developer for a consideration. According to AO, The right created by the DCR attaches to the land owned by the Society which was acquired for a value, which is capital asset under section 2(14). CIT(A) upheld order of AO. The tribunal followed decision of new ShailajaC HS and held that sale of TDR does not give rise to capital gains. High Court gave a finding that in present case additional FSI/TDR is generated by change in D.C> Rules and it is not a case of sale of Development Rights which were embedded in the land and thus upheld Tribunal’s order thereby bringing a relief to all those societies which have redeveloped their properties.
Commissioner of Income Tax – Appellant – Versus – Sambhaji Nagar Co-op Hsg. Society Ltd – Respondent
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1356 OF 2012
Commissioner of Income Tax18
Sambhaji Nagar Coop. Hsg. Society Ltd.
Mr. A. R. Malhotra with Mr. N. A. Kazi for the Appellant.
Mr. Ajay Singh for the Respondent.
CORAM: S.C.DHARMADHIKARI & A.A.SAYED, JJ.
DATED: DECEMBER 11, 2014
This Income Tax Appeal challenges the order passed on 30thMarch, 2012 in Income Tax Appeal No. 431/Mum/2012. The Assessment year is 2007-08.The Income Tax Appellate Tribunal (ITAT)was dealing with the Appeal of the Respondent Assessee. That Appeal was directed against the order of the Commissioner of Income Tax(Appeals) dated 30th November, 2011, where under, he upheld the validity of the assessment made by the Assessing Officer under section143(3) read with section 147 of the Income Tax Act. He confirmed the addition of Rs.2,23,25,157/madeby the Assessing Officer to the total income of the Assessee under the head “long term capital gains”.
2) Mr. Malhotra appearing on behalf of the Revenue, in support of this Appeal, submits that this Appeal raises substantial question 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“l ong term capital gains” in the hands of the Assessee in the year under Appeal. That was confirmed by the Commissioner.
3) Mr. Malhotra has invited our attention to section 54E of the Income Tax Act and submitted that the subsection which has been invoked in this case together with the Explanation would denote that this was a case where the gains were derived by the Assessee. Once the gains were derived in the manner set out in this section, then, the computation thereof has been done in accordance with law. There was no necessity of interfering with the order passed and concurrently.
4) On the other hand, Mr. Singh appearing on behalf of the Assessee would submit that the Tribunal has rightly appreciated the controversy. It was identical to the two cases dealt with earlier. One in the case of New Shilaja Cooperative Housing Society Ltd. and another was Shakti Insulated Wires Ltd. The Tribunal has assigned reasons for arriving at the conclusion. That conclusion is recorded by the Tribunal in para 7 and para 9 of the order under challenge. The Tribunal has rightly understood the concept and, where there was no mechanism evolved by the Revenue so as to compute the gains, then, the order under challenge cannot be said to be erroneous, much less perverse requiring interference in our further appellate jurisdiction. The Appeal does not raise any substantial question of law and deserves to be dismissed.
5) Reliance is placed by Mr. Singh on the decision of the Hon'ble Supreme Court in the case of Union of India vs. Cadell Weaving Mill Co. P. Ltd. and Anr. and connected Appeals reported in (2005) 273ITR 3.
6) We have heard both sides at great length and with their assistance, we have perused the order passed by the Tribunal and that of the Commissioner and the Assessing Officer. The Assessing Officer has noted the basic facts and about which there is no dispute. What has been argued before the Assessing Officer is that with the promulgation of the Development Control Rules, 1991 (DCR), the Assessee Society acquired right of putting up additional construction through TDR. Instead of utilizing this right itself, the Society decided to transfer the same to a Developer for a consideration. The Society transferred a valuable right, which is capital asset under section 2(14) of the Income Tax Act. The right created by the DCR attaches to the land owned by the Society which was acquired for a value. Its title or ownership of the plot enables the Society to consume this FSI/TDR. In such 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 2FSI 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 computedthese gains, but the coordinate Bench decision in the case of NewShailaja Cooperative Housing Society Ltd, involved similar controversy and the Tribunal concluded that the sale of TDR does not give rise toany capital gains chargeable to tax. The Tribunal's conclusion is that the situation and factually in both cases is identical. While it is true that the Revenue has not pursued the matter in the case of New Shailaja CooperativeHousing Society Ltd. because the report of the Registry indicates that an Appeal was brought to challenge that order but came to be dismissed for non compliance of the office objections. However, on a pertinent question as to how the computation of this sale of TDR could be made and in terms of the legal provisions, reliance is placed on section 50C of the Income Tax Act. The other provision and which has been relied upon in this case is subsection(2) of section 55. Both these provisions read as under:
“S. 50C (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for thepurpose of payment of stamp duty in respect of such transfer, thevalue so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(2) Without prejudice to the provisions of subsection(1)where -
(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under subsection(1) exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed or assessable by the stamp valuation authority under subsection(1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court;
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of subsection(2), (3), (4), (5) and (6) of section16A clause (I) of subsection24, section 34AA, section 35 and section 37 of the Wealth tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection(1) of section 16A of that Act.
Explanation (1) For the purposes of this section “Valuation Officer "shall have the same meaning as in clause (r) of section 2 of the Wealth tax Act, 1957 (27 of 1957).
Explanation (2) For the purposes of this section, the expression“assessable” means the price which the stamp valuation authoritywould have, notwithstanding anything to the contrary contained inany other law for the time being in force, adopted or assessed, if it were referred to such authority for the purpose of the payment ofstamp duty.
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