By Legal Cell
Income Tax Appellate Tribunal – Mumbai Chiranjeev Lal Khanna, Mumbai vs Assessee
In principle, though the scope of “income” in s. 2(24) is very wide, a capital receipt is not chargeable to tax as income unless there is a specific provision to that effect. As the residential flat owned by the assessee in the society’s building was a capital asset in his hands, the compensation was a capital receipt.
The department’s argument that the cash compensation was a “share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that the nature of payment in the hands of the payer determines the nature in the hands of the recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be taken into when computing the gains from a transfer thereof in the future
Facts:- that the assessee is carrying on profession as a Chartered Accountant. During the course of assessment proceedings, the Assessing Officer noted from the computation statement that the assessee has shown long term capital gain as per Annexure at nil. As per Annexure to the return, the assessee indicated that he has earned net long term capital gain of Rs. 1,01,73,965/-, which he claimed as exempt u/s 54 of the I T Act on account of investment in new flat at Rs. 59,17,500/- and investment in NABARD Bonds for Rs. 50,00,000/- respectively. The capital gain has arisen to the assessee on account of transfer of assessee’s 50% share by virtue of development agreement dated 26.2.2004.
The net long term capital gain was shown as under:-
Amount of consideration received from Vinita Estate P Ltd – Builders and Developers (Wadhwas) Vasu Kamal, Bandra(W), Mumbai-50 on surrender of FSI of land plot on 8 Chiranjeev Bldg. JVPD Scheme Mumbai 400 049 (but in 1985 and occupied in March, 1985) vide Development Agreement dated 26.2.2004/5.4.2004 Gross) Rs. 1,09,17,500.00
Deduct :Cost of land – Bldg on 31.3.2004 (As per Balance sheet) Rs. (-) 7,43,534,76
Order:– the Hon’ble Court admittedly, the balance sheet of the assessee shows the value of the building at Rs. 7,43,534/-. However, no justification/reason has been given by the Assessing Officer as to how and why he has not considered the indexation of the building, which is as per the balance sheet, while calculating the capital gain. The CIT(A) has also not dealt with this issue. Under these circumstances, we deem it proper to restore this issue back to the file of the Assessing Officer to pass a speaking order on this issue in accordance with law and after giving due opportunity of being heard to the assessee. We hold and direct accordingly.
The grounds of appeal no.4(b) is accordingly allowed for statistical purpose. So far as the grounds of appeal no.4(c) regarding the working of capital gain filed by the assessee at Rs.39,32,160/- is concerned, in view of our decision in respect of grounds of appeal 4(b) wherein we have restored the issue to the file of the Assessing Officer, this ground needs to go back to the file of the Assessing Officer for fresh computation of capital gain. Accordingly, grounds of appeal no.4(c), is allowed for statistical purpose.
Grounds of appeal no.4(d) being general in nature is dismissed.
ITA No.6170/Mum/2008 22 So far as grounds of appeal no.8 is concerned, we find the assessee relied on the decision of the Tribunal in the case of New Shailaja Co-op Hsg Soc Ltd vs ITO vide ITA No.512/Mum/2007dated2.12.2008 for the Assessment Year 2003-04. In that case the assessee became entitled to additional FSI of around 11000 sq,ft due to its land holding. The assessee transferred this entitlement for consideration of Rs. 48.96 lacs to the builder. Under these circumstances, it was held by the Tribunal that the assessee has not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible for additional FSI. Since there was no cost of acquisition for the additional FSI, the Tribunal, relying on a couple of decisions including the decision of the Hon’ble Supreme Court in the case of B C Sreenivasa Shetty held that no capital gain chargeable to tax has arisen. However, in the instant case, there is a transfer of existing land and building. It was demolished by the builder for fresh construction. The documents were registered by the State Registration Authorities. Therefore, the decision of the Tribunal in the case of New Shailaja Co-op Hsg So Ltd (supra), in our opinion is not applicable to the facts of the present case. In this view of the matter, the grounds of appeal no. 8 by the assessee, is dismissed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on the 23th, day of April 2011.