Income Tax Appellate Tribunal – Mumbai
Ito 32(3)(4), Mumbai vs State Bank Of India Staff Vaibhav … on 19 June, 2019 IN THE INCOME TAX APPELLATE TRIBUNAL “G”, BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JM & SHRI M.BALAGANESH, AM ITA No.5324/Mum/2016 (Assessment Year :2011-12)
ITO-32(3)(4) Vs. State Bank of India Staff
Room No.103, 1st Floor Vaibhav Co-op Hsg. Ltd.
Aayakar Bhavan Bungalow No.8, Daulat
M.K.Road, Nagar, Road No.1,
Mumbai – 400 020 Borivali (E) Mumbai – 400 066 PAN/GIR No.AAIAS1423J
(Appellant) .. (Respondent) CO No.8/Mum/2018 (Arising out of ITA No.5324/Mum/2016) (Assessment Year :2011-12)
State Bank of India Vs. ITO-32(3)(4)
Staff Vaibhav Co-op Room No.103, 1st Floor
Hsg. Ltd. Aayakar Bhavan
Bungalow No.8, Daulat M.K.Road,
Nagar, Road No.1, Mumbai – 400 020
Borivali (E)
Mumbai – 400 066 PAN/GIR No.AAIAS1423J
(Appellant) .. (Respondent) Revenue by Shri Santanu Kumar Saikia Assessee by Shri Dr. P. Daniel Date of Hearing 13/06/2019 Date of Pronouncement 19/06/2019 आदे श / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.5324/Mum/2016 and Cross Objection in
CO No.8/Mum/2018 for A.Y.2011-12 arise out of the order by the ld. 2 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty Commissioner of Income Tax (Appeals)-44, Mumbai in appeal
No.CIT(A)44/ITO32(3)(3)/ITA.371/15-16 dated 16/06/2016 (ld. CIT(A)
in short) against the order of assessment passed u/s.143(3) r.w.s. 147
of the Income Tax Act, 1961 (hereinafter referred to as Act) dated
27/03/2015 by the ld. Pr. Commissioner of Income Tax-32, Mumbai
(hereinafter referred to as ld. AO). 2. Though the revenue had raised various grounds, we find that the
only effective issue to be decided in this appeal of the revenue is as to
whether the ld CITA was justified in deleting the addition made on
account of long term capital gains in the facts and circumstances of the
case. 3. The brief facts of this issue are that the assessee is a Co-operative
Housing Society with 57 members. It had not filed any return of
income for the Asst Year 2011-12. The PAN of the assessee is allotted
in the status of „Association of Persons‟ (AOP). The ld AO observed
that pursuant to the information received from the Director of income
Tax (Intelligence & Criminal Investigation), the case of the assessee
was reopened by issuance of notice u/s 148 of the Act on 30.8.2013
after recording the following reasons :- “Information had been received from the Director of Income- Tax (Intelligence & Cr. Inv), Mumbai that assessee development agreement had taken place between State Bank of India staff “Vaibhav” CHS Ltd and M/s Ahura Developers Pvt Ltd. It is observed from the agreement executed on 4.11.2010 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 3 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 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 Rs34,69,55,000/- 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 shall be taken as the full value of consideration. Further, it also appears from the agreement that the society shall be paid Rs 50,00,000/- by the developer ie 50% at the time of execution and registration of the agreement for development and the remaining 50% at the time of completion of project This amount of Rs 50,00,000/- received by the society is to be taxed under the head income from other source. In view of the above facts I have reason to believe that the income of Rs 34,69,55,000/- Plus Rs 50,00,000/- totaling Rs 35,19,55,000/- has escaped income. The notice under section 148 of the Income- Tax act, 1961 is issued.” 3.1. Pursuant to the said notice u/s 148 of the Act, the assessee filed
the return of income on 24.2.2015 declaring total income of Rs
91,311/- and after claiming deduction under Chapter VIA of the Act ,
the assessee has shown Nil income. The primary facts are that the
assessee is a cooperative housing society having registration no.
BOM/HSG/1962 of 1969 and is registered as a co-operative housing
society under the Maharashtra Co-operative Society Act, 1960. The
society has 57 members. Each member is having a Bungalow on the
plot held by the Society. These Bungalows were old and constructed
during the years 1969 to 1973 and the land on which these Bungalows
were situated is surrounded on three sides by DAHISAR River and
during rainy seasons, there use to be incidence of flooding as these are 4 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty low lying areas. Vide its Special General Meeting held on 14.8.2009,
the society passed a resolution for re-development of the society
property. The Society vide Agreement dated 13.10.2010 entered into
a Development Agreement with M/s Ahura Developers Pvt Ltd ,
whereby the Society authorized the Developer to demolish the said
Bungalows and reconstruct a Tower. As per the Development
Agreement, the Developer agreed to pay Rs 50 lakhs as Corpus Fund
to the Society and Rs 40 lakhs to each member of the Society on
vacating and handing over their Bungalow to the Developer. The
Development Agreement was approved by the 2/3rd majority of the
members of the Society. This Development Agreement dated
13.10.2010 was registered on 14.10.2010 by the Developer and the
latter paid the stamp duty of Rs 1,73,47,750/-. The Stamp duty
valuation of the property of the Society comes to Rs 34,69,55,000/-.
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 Rs 40
lakhs to the member was revised to Rs 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 Rs 15,000/- per month, which was
subsequently revised to Rs 30,000/- per month and Rs 1,50,000/- as
refundable deposit. The Developer also agreed to provide Bank
Guarantee of Rs 50 Crores and also provide Solvency Certificate for a
sum of Rs 50 Crores. 5 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 3.2. After execution of the agreement, the Developer paid 50% of the
amount agreed being Rs 25 lakhs to the Society and the Developer had
also paid Rs 2,24,00,000/- to the different members of the Society.
The Society was asked as to why capital gains should not be levied in
respect of this transaction by issuing show cause notice as under:- ―You have entered into a redevelopment agreement with M/s. Ahura Developers Pvt. Ltd., for transferring of property being land of the society , vide agreement dtd.04.11.2010. The stamp duty valuation of this property was Rs. 34, 69, 55, 000/-however society have not offered or paid any capital gain on the said transaction, please explain why capital gain for the above transaction of property should not be taxed in the hand of the society applying the provisions of the 50C of the I. T. Act. 1961.‖ 3.3. The assessee responded vide letter dated 19.2.2015 as under:- ―It is true that our Society has entered into a redevelopment agreement with M/s Ahura Developers P. Ltd. But it is incorrect to say that the Society has transferred the land to the developer. The land was and is always in the ownership and possession of the society. We had only given the development right to the developer and nothing beyond that. As per the stamp Duty Regulations, the developer is mandatorily required to pay the Stamp Duty on the registered Development Agreement. This liability is also worked out by the Stamp Duty office. This can be verified form the Development Agreement that the developer was only given the right to develop the property and that not an inch of the land was transferred in favour of the developer. As a consequence, there is no capital gain arising to the Society from this transaction.‖ 3.4. The assessee filed further letter dated 24.3.2015 to the ld AO by
stating as under:- “Perusal of the Development agreement would reveal that although the development rights have been granted to the developer under the said agreement, even as on today the possession of the property has not been handed over fully to the developer for the reason interalia that some of the members have not vacated their respective premises. It may be appreciated that para 1.4 of the development agreement very logically and rightly provides that the developer will carry out development of the property by demolishing, bunglows/ structures 6 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty ”’standing on the said property. Since the bungalows and structures have not been vacated therefore, presently neither demolition is possible nor development is possible nor the development is possible.” 4. 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
year 2010-11 relevant to Asst Year 2011-12. He placed reliance on the
decision of Hon‟ble Jurisdictional High Court in the case of Chaturbhuj
Dwarikadas Kapadia vs CIT reported in 260 ITR 491(Bom), wherein it
was held that capital gain arises on the date of development
agreement followed by part performance of the agreement. 4.1. The ld AO worked out the total compensation payable to the
society on the above mentioned transaction pursuant to Development 7 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty Agreement at Rs 30,14,00,000/- , whereas the stamp duty value of
Development Agreement was Rs 34,69,55,000/-. The ld AO observed
that provisions of section 50C of the Act would be applicable in the
instant case as the asset held by the society is a capital asset. The ld
AO observed that the assessee only objected regarding taxability of
capital gain but did not raise any objection in respect of applicability of
provisions of section 50C of the Act. Accordingly, he determined the
total income of the assessee representing long term capital gains at Rs
34,69,55,000/- and completed the re-assessment for the Asst Year
2011-12. 5. The assessee pleaded before the ld CITA that the assessee society
being the owner of the capital asset is not in dispute at all. It referred
to last line of Page 5 of the order of the ld AO wherein it is stated as
under:- “It is thus clear that rights and benefits available to the said land has
been transferred to the developer for an agreed consideration”. 5.1. The assessee pleaded that it is not clear from where the ld AO
arrived at this conclusion. Nowhere it is mentioned that the possession
is handed over to the Developer. Besides time and again it was
submitted by the assessee society that nothing has been transferred to
the Developer. The assessee placed reliance on the co-ordinate bench
decision of Mumbai Tribunal in th ecaes of Bhatia Nagar Premises Co-
operative Society Ltd vs ITO reported in (2013) 59 SOT 134 (Mumbai)
wherein it was held that property can be held to be transferred under a
Development Agreement only when possession is handed over to the
Developer and not on the agreement date, when only a small portion
of consideration was received. 8 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 5.2. The assessee further pleaded that in respect of „Consideration
received by the Society from Developer‟, the ld AO went on to add
every benefit which will be 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 Rs 34,69,55,000/- by observing as under:- ―3.7 I have carefully gone through the assessment order as well as the submissions of the appellant. I have also studied the details filed by the appellant. From the facts of the case as emerging out of assessment order there are three related issues which have to be decided. They are:- 9 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty I. Is there a capital asset which has been transferred?.
II. Even if there is a capital asset which has been transferred,
does this transfer lead to incidence of capital gain. III. Is there application of sec. 50C in this case? 3.8 Regarding the first question an impression is created from a
study of assessment order that as per the assessing officer, the
assessee has entered into agreement for transfer of property and
right in property. So what is the nature of the property? If the
property sought to be transferred is meant to be land and building
then clearly facts of the case do not point to this conclusion.
Similarly, whether the assessee has relinquished its right over the
property? This also does not seem to be the case as from the plain
reading of the development agreement dated 13.10.2010
(registered on 04.11.2010) it is obvious that this agreement is not
an agreement for sale rather it is an executory contract with the
developer. As per pages 4-5 of the agreement, the assessee has
granted rights to the developer for carrying the development of the
said property and constructing there upon the new proposed
building. The developer shall be entitled to avail additional FSI
which may be available in case of redevelopment and in
lieu of the area used for widening of the highway or roads or nalla.
Then, the question arises whether the assessee has relinquished its
right over the property. This also does not seem to be the case as
even after redevelopment the society will be the owner of the land.
The land and buildings will always be the property of the appellant
.society and what the developer gets is only additional FSI which is
available as per the development control regulations 1991, Further
the developer will get such additional FSI only upon happening of
certain events which had not taken place till the finalization of
assessment. Thus prima facie there does not seem to be any
transfer of capital asset. 3.9 Having said that, suppose for argument’s sake it is assumed
that there is a transfer of capital asset which is of the nature of
additional FSI. In this situation how will 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 10 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 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 acquisition in acquiring the right which has been
transferred. Being so, there will be no incidence of capital gain as
decided by thejurisdictional Bombay High Court in the case of CIT
v Sambhaji Nagar Co- Op hsg. Scty. Ltd. (2015) 370 ITR 325. In the case of C.I.T. v. Sambhaji Nagar Coop Hsg. Society Ltd. the
jurisdictional High Court held as under:- “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. The assessee-society with the promulgation of the Development
Control Rules for Greater Mumbai, 1991, acquired the right of
putting up additional construction through transferable
development rights. Instead of utilising the right itself, the
assessee decided to transfer the right to a developer for a
consideration. The Assessing Officer, for the assessment year
2007-08, held that the assessee transferred a valuable right,
which was a capital asset under section 2(14) of the Income-tax
Act, 1961. The right created by the 1991 Rules attached to the land
owner by the assessee which was acquired for a value. Its title or
ownership of the plot enabled the assessee to consume this floor
space index/ transferable development right. Under these
circumstances, the Assessing Officer held that this was a transfer
of a Capital asset held by the assessee, which was chargeable to
tax. This was confirmed by the Commissioner (Appeals). The
Tribunal, however, held that the Sale of transferable development
rights did not give rise to any Capital gains chargeable to tax. On
appeal: Held, dismissing the appeal, that in the case of the assessee the
floor space index/transferable development right was generated by
the plot itself. There was no cost of acquisition, which had been
determined and on the basis of which the Assessing Officer could 11 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty have proceeded to levy and assess the gains derived as capital
gains. Additional floor space index/ transferable development right
was generated by change in the Development Control Rules, 1991.
A specific insertion would, therefore, be necessary so as to
ascertain its cost for computing the capital gains. Therefore, the
transferable development right which was generated by the
property and was transferred under a document in favour of the
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 been
held by the Mumbai Tribunal as under: The assessee was the owner of the land and building and continued
to remain the same even after transfer of the said capital asset.
Thus, the cost of the land and building of the existing structure
could not be attributed to the additional FSI received by means of
1991 Rules. It is true that such right is a Capital asset as per the
provisions of S. 2(14) but in order to compute capital gains apart
from the existence of capital asset, there should be sale
consideration accruing as a result of transfer of capital asset as
well as the cost of acquisition of the asset along with the cost of
any improvement thereto, if any, Sec. 48 sets out the mode of
computation of income under the head Capital gains by providing
that the expenditure incurred wholly and exclusively in connection
with the transfer of a Capital asset along with the cost of
acquisition and cost of any improvement, if any, shall be deducted
from the full value of consideration received or accruing as a
result of the transfer of capital asset. Transfer of capital asset
which does not have any cost of acquisition does not result into 12 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty capital gains chargeable to tax under S. 45. The legislature in its
wisdom brought out certain categories of Capital assets under S.
55(2) as having cost of acquisition of Rs. Nil, where such assets
have not been purchased by the assessee for consideration. The
effect of this sub-section is that when the assets so specified in sub-
s. (2) of s. 55 are transferred, then the cost of acquisition has been
taken at Rs. Nil except where the assessee had acquired such assets
by means of purchasing from the previous owner, and the
computation of the capital gain would be done accordingly. There
is a difference in the situation when cost of acquisition is Rs. Nil
and where the cost of acquisition cannot be ascertained or no cost
of acquisition has been incurred. The items of capital assets
specified in S. 55(2) are those for which the cost of acquisition
shall be taken at Rs. Nil for computing capital gains. However, if
the assessee had not incurred any cost of acquisition on a capital
asset and such capital asset does not fall in the category of the
capital assets specified in s. 55(2) then no capital gain would
be charged. It is abundantly clear 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 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 Rs. 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 Rs. 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 irrelevant and immaterial because when there is no
incidence of capital gain there is no relevance of section 3.12 There is another aspect of this case which is important to
consider. The agreement on which stamp duty valuation has been
done is not a sale agreement but is an executory agreement. As per 13 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty this agreement the transferee will acquire the additional FSI only upon happening of certain events i.e. demolition of old buildings and construction of new buildings. There is no dispute that till the time of finalization of assessment no such thing has taken place. The appellant society has not given possession to the developer. The developer has not even managed to get CC. On similar facts the ITAT, Mumbai in the case of Bhatia Nagar premises CHS ltd. v. ITO (2013) 59 SOT 134 stated inter alia that “DRA clearly provided that the developer was authorized to demolish and reconstruct old building and simultaneously he was authorized to develop remaining property consuming the principle FSI of the plot and by buying and utilizing additional TDR as per OCR. Therefore, assessee could transfer the additional FSI only on demolition of old building which has not taken place till now. Developer has not been able to obtain even the IOD and CC in respect of reconstruction of the old building as was required to be done under the DRA. The old building has not been demolished till date and members continued to occupy the flats in the old buildings. In such a situation, it could not be said that the assessee has transferred its rights over the FSI to the developer in AY2009-10” 3.13 Facts of the present case are exactly similar to the case quoted above. As per the submission of the appellant dtd 12.04.2016, the bungalows and structures have not been vacated and therefore presently neither demolition nor development is possible. It is further stated that till the date of submission the developer has not even purchased the FS1/TDR as required for redevelopment of the society.

3.14 The AO had relied in his order on the decision of Bombay High Court given in the case of Chatturbhuj Das Kapadia 260 ITR
491. owever, this case is distinguishable on facts and law because the issue this case was regarding the year in which the capital gain was d the effect of insertion of clause v and clause vi in section 2(47) wef .04.1998. In the present case the decision 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 Rs 34,69,55,000/- stands deleted.‖ 7. Aggrieved, the revenue is in appeal before us.
14
ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 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) Letter addressed to Addl CIT dated 22.6.2015 (enclosed in pages
197 to 206 of Paper Book) ;

g) Letter submitted before ld CITA dated 12.4.2016 (enclosed in pages
207 to 220 of Paper Book) ;

h) Letter submitted before ld CITA dated 26.4.2016 (enclosed in pages
221 to 225 of Paper Book) ;

i) Cases pending before Hon‟ble Bombay High Court with Case status,
etc and of Cooperative Courts (enclosed in pages 226 to 256 of Paper
Book) ;

j) Letter submitted before ld CITA dated 9.6.2016 (enclosed in pages
257 to 264 of Paper Book) ;
8.1. We find that 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
15 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty Transferable Development Rights (TDR) FSI in respect of the said
property. The payment of Rs 40 lakhs to the member was revised to Rs
52 lakhs besides a flat with 1700 sq.ft to each member instead of 1300
sq.ft originally agreed, 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 Rs 15,000/- per month, which was
subsequently revised to Rs 30,000/- per month and Rs 1,50,000/- as
refundable deposit. It is the case of the assessee that the possession
of the property was not given as on date. Various cases were pending
before various courts against the society. Now the Developer had also
filed a Suit for specific performance against the society before the
Hon‟ble Bombay High Court and the same is pending before the
Hon‟ble High Court. The following issues are to be decided to address
the various disputes before us :-
a) Was there any capital asset transferred within the meaning of
section 2(47) of the Act in assessee‟s case ?
b) Even if any asset is transferred then can the value of such an asset
be treated as Nil in view of the provisions of section 55(2) of the Act ?
c) If both the conditions stated above does not prevail, then can there
be any relevance to applicability of provsions of section 50C of the Act?
8.2. It would be relevant to get into the definition of „transfer‟ as per
section 2(47) of the Act 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
16 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty (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 could be seen that the only clause
which can be considered is (v) i.e section 2(47)(v) read with section
53A of Transfer of Property Act, 1882 . In our considered opinion, the
same is not applicable in this case because Possession have not been
given to the Developer by the assessee society till today. Infact the
Developer had filed a suit for specific performance in 2014 which is still
pending before the Hon‟ble Bombay High Court. Moreover, we find
that the ld AO had addressed a letter in Reference No. ITO
32(3)(4)/Report/2018-19 dated 6.7.2018 to ld CIT DR, ITAT , Mumbai
submitting the report on the factual position on handing over
possession of 57 bungalows by the assessee society to the Developer,
enclosing the Inspector‟s Report who personally visited the site. In the
said report, the Ex-Secretary of the assessee society had categorically
stated that the possession of land and 57 Bungalows were not handed
over to the Developer. It was also stated that there are only 15
Bungalows and remaining physical structures were destroyed or
damaged by Flood which occurred in 2005. Some front part of
society‟s property was also taken by Mumbai Metro for construction
17 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty work, for which also, the possession was not handed over by the
assessee society. The Inspector also placed certain photographs of the
building found during the inspection, which admittedly contained lot of
old bungalows belonging to assessee society. This letter dated
6.7.2018 received from the ld AO was also forwarded by the ld CIT DR
ITAT G Bench to this Tribunal vide his letter in Reference No.
CIT(DR)/ITAT/G-Bench/2018-19 dated 3.10.2018 which is also forming
part of our records. Hence it is categorically clear that possession is
not handed over to the Developer by the assessee society. Hence
there cannot be any transfer within the meaning of section 2(47)(v) of
the Act read with section 53A of Transfer of Property Act, 1882, even
based on part performance of the contract. We find that the ld CITA
had also observed that possession was not handed over to the
Developer by the assessee society. This fact was not controverted by
the revenue 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.
8.3. The provisions of section 55(2) of the Act states as under:-
―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
18 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 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 clause (b) (i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset
(ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee ;
(iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ;
(iii) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and
(iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ;
(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange:

Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil;

[(ac) subject to the provisions of sub-clauses (i) and (ii) of clause (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before the 1st day of February, 2018 shall be higher of–
19
ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty (i) the cost of acquisition of such asset; and
(ii) lower of–
(A) the fair market value of such asset; and (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 exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under section 47, an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the financial year 2017-18 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 2001, whichever is later;
(b) “Cost Inflation Index” shall have the meaning assigned to it in clause (v) of the Explanation to section 48;
(c) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;]
(b) in relation to any other capital asset,–
(i) where the capital asset became the property of the assessee before the 1st day of April, 81[2001], means the cost of acquisition of the
20 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty asset to the assessee or the fair market value of the asset on the 1st day of April, 81[2001], at the option of the assessee ;
(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 81[2001], means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 81[2001], at the option of the assessee ;
(iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head “Capital gains” in respect of that asset under section 46, means the fair market value of the asset on the date of distribution ;
(iv) [***]
(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on–
(a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares,
(b) the conversion of any shares of the company into stock,
(c) the re-conversion of any stock of the company into shares,
(d) the sub-division of any of the shares of the company into shares of 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
21 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 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 Regulations, 1991 (OCR) entitling the assessee to additional FSI by virtue of which, assessee became entitled to additional space of 15,000 sq. ft. for further construction–Assessee thereupon entered into agreement with developers for such additional construction for a consideration of Rs. 42 lacs–Transferable development rights (TDR) were to be arranged by the developers at their own cost–AO, took the cost of acquisition of additional FSI at nil and brought the entire receipt of Rs. 42 lacs to tax at long-term capital gains–Not justified–Under the OCR, two distinct and separate rights arose, viz., TDR and the right to construct additional floor–Acquisition of TDR being to the detriment of land surrendered it had an inbuilt cost in the form of cost of land surrendered while the later one arose without any cost–Right to make additional construction on account of increase in FSI as per DCR was no doubt ^capital asset’ under s. 2(14) and its assignment ‘transfer’ under s.
2(47)–However, right to construct additional floors is not covered by any of the assets mentioned in s. 55(2), and therefore capital gains cannot be charged by taking its cost at nil under that provision–Cost of acquisition of right to make additional construction being ‘nil’ de hors and independent of s. 55(2), computational provisions failed and the capital receipt could not be brought to tax under s. 45–Concept of cost of acquisition of bonus shares could also not be imported as bonus shares are issued to the detriment of original shares but in this case, there was no detriment to the cost of land, rather the same had increased–Further, entire FSI having been exhausted there was no right of additional construction embedded in the land–If the asset has inherent quality of being available on expenditure of money and the assessee has acquired it without cost, then only the cost of acquisition can be taken to be nil – Additional FSI and consequent right to additional construction could not be available to assessee on expenditure of money but for operation of DCR – Receipt was capital receipt not chargeable to tax.‖ The ultimate conclusion drawn by this tribunal in the said case was as
under:-
22
ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty Right to make additional construction on acquisition of additional FSI by operation of Development Control Regulations, 1991, having no cost of acquisition to assessee, 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 by the AO becomes illegal and deserves to be deleted.

3.7. Per contra, Ld. DR relied upon the orders of the lower authorities and submitted that the AO has substituted the amount of sales consideration on the basis of report of the DVO. Since, the valuation shown by the DVO is more than the consideration shown by the assessee, therefore, as per section 50C higher value should be adopted. 3.8. We have gone through the submissions of the assessee. We shall first deal with the last argument of the assessee which is directly on the scope of section 50C. The perusal of section 50C shows that the section 50C shall be applicable where the consideration received as a result of transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or
23 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty assessable by any authority of State Government………. Thus, it is
noted that the term ‘capital asset’ mentioned in the section
specifically refers and confines its meaning to ‘land or building or
both’. Thus, scope of section 50C is restricted by the legislature itself
to these two types of capital assets only.

3.9. Turning back to the facts of the case before us, the capital asset
transferred by the assessee was ‘Development Rights in the land’ and
not the ‘Land’ itself. If we go through few other similar provisions of
the Act, we find that the legislature has used this expression
consciously and carefully and keeping in view its need and objective
of legislating section 50C. For example, in section 269A, the
expression ‘immovable property’ has been defined as under:

“Immovable property” means-

(i) any land or any building or part of a building, and includes, where
any land or any building or part of a building is transferred together
with any machinery, plant, furniture, fittings or other thing which
machinery, plant furniture, fittings or other things also.

Explanation- for the purposes of this [sub-clause], land building part
of a building, machinery, plant, furniture, fittings and other things
include any rights therein;

(ii) any rights of the nature referred to in clause (b) of sub- section
(1) of section 269AB…..”

3.10. Similarly, in section 269 UA also identical definition has been
given. In these cases, ‘rights’ in ‘land & building’ 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
24 ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty Strict Interpretation’ as well as ‘Rule of Literal Construction’ while understanding the meaning and scope of deeming provisions. In our opinion, under the given facts and circumstances, Ld. Counsel has rightly contended that since the impugned capital asset transferred by the assessee upon which long term capital gain has been computed by the AO is on account of transfer of Development Rights in the land of the assessee. The land itself has not been transferred by the assessee. Thus, in our opinion provisions of section 50C have been wrongly applied upon the impugned transaction. Thus, we reverse the action of lower authorities in applying the provisions of section 50C and in substituting any value other than the amount of actual sales consideration received by the assessee. It is also noted by us that for the assessment year under consideration there is no other provisions on the statute which permit the AO to substitute any other value with the full amount of consideration actually received by the assessee, while computing income under the head of capital gains. Under these circumstances, ground No.1.2 of the main grounds of the assessee is allowed. Since we have allowed the grounds of the assessee on the preliminary objection itself and therefore we are not dealing with other arguments at this stage as these have been become academic in nature. Thus, supplementary ground nos. 1.5 to 1.10 and original ground nos.1.1 to 1.4 are partly allowed with our directions as given above.
The question no. c) raised hereinabove is also decided in favour of the
assessee.
8.5. We find that the ld AO had placed reliance on the decision of
Chaturbhujdas Dwarikadas Kapadia in 260 ITR 491 (Bom) supra . We
find that in that case, the issue was the year in which the capital gains
was taxable and the effect of insertion of clause (v) and (vi) of section
2(47) of the Act with effect from 1.4.2008. This is not the issue in
dispute before us. Hence the same is factually distinguishable with the
assessee‟s case.
25
ITA No.5324/Mum/2016 & CO No.8/Mum/2018 State Bank of India Staff Vaibhav Co-op Hsg.Scty 9. In view of the aforesaid observations in the facts and circumstances
of the case, we find no infirmity in the order of the ld CITA.
Accordingly, the grounds raised by the revenue are dismissed.
10. The ld AR stated before us that the cross objections raised by the
assessee are only supportive of the order of the ld CITA.
11. In the result, the appeal of the revenue is dismissed and
cross objection of the assessee is dismissed. Order pronounced in the open court on this 19/06/2019 Sd/- Sd/- (PAWAN SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 19/06/2019
Karuna Sr.PS Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. सत्यापित प्रतत //True Copy// BY ORDER, (Asstt. Registrar) ITAT, Mumbai

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