By Legal Cell
Commissioner of Income Tax-18
Sambhaji Nagar Co-op. Hsg. Society Ltd.,
Income Tax Appeal No. 1356 of 2012
In Mumbai, hundreds of Co-operative Housing Societies are functioning whose buildings have become old and dilapidated due to age. The societies lack finance and technical expertise to repair their buildings. The societies, therefore, seek the help of a developer to carry out the construction at his own cost and pay compensation to the society members in the form of the corpus, rent and larger area.
Controversy had existed between societies and the IT Department regarding taxability of these amounts. On 11-12-2014 the Bombay High Court has given very important judgment on this point. It is hoped that this decision of Bombay High Court would put the matter to rest.
Recently Bombay High Court has rendered a decision in the above case and confirmed the order of ITAT that compensation of Rs. 2,23,25,157/- received by the society from Developer is not taxable.
Brief Facts of the case are as under:
With the promulgation of Development Control Rules, 1991 (DCR), the society acquired right of putting up the additional construction through TDR. The society transferred the said valuable TDR right to a Developer.
A.O. held that the said right is attached to the land owned by the society which had been acquired for a value and therefore there is a transfer of Capital asset chargeable to Tax. The CIT(A) upheld the order of A.O. holding that this is not a case where extra FSI had occurred due to change in the law but TDR already existed at the time of reconstruction of society’s Bldg.
The Tribunal followed a decision by Coordinate Bench in the case of New Shailaja CHS involving similar controversy and held that sale of TDR does not give rise to any Capital Gains chargeable to tax.
The High Court looked into the provisions of Sec. 48 wherein mode of computation of Capital Gain is laid down, Sec. 49 wherein cost with reference to certain modes of acquisition is set out and Sec 55 (2) clarifying the cost of acquisition for the purpose of sec 48 of 49.
The High Court gave a finding that in the present case additional FSI/TDR is generated by a change in D.C. Rules and it is not a case of sale of development rights which were embedded in the land. High Court held that Tribunal has followed its own decision in New Shailaja Co-operative Housing Society which is based on Supreme Court’s decision in B.C. Srinivasa Setty 128 ITR 294 SC holding that society did not incur any cost of acquisition in respect of the right emanating from 1991 Rules.
The High Court upheld the Tribunals order.
This judgment will be a big relief for all those societies which have redeveloped their properties.