Capital gains

The assessee was a member of a registered society which entered into agreement with developer (M/s New India Construction Company) for the redevelopment of the buildings owned by the society. As per the agreement, the society and the members received an amount of Rs. 3,02,16,828 on account of sale of FSI to M/s New India Construction Company. Out of the above amount, Rs. 2,99,65,828 was received directly by the 51 members and the society received only Rs. 2,51,000. As developer had entered into separate agreements with the individual members of the society, reopening the proceedings under s 147 was initiated to bring to tax the compensation received by each and every 51 members of the society, as the income received from the developer was not declared in the return of income. Since the total amount of compensation received from a developer by the society and 51 members of the cooperative society is taxed on a substantial basis in the lands of the cooperative housing society, the share of compensation received by the assessee of Rs. 5,87,565 was charged on a protective basis. In an appeal, the CIT(A) directed the AO not to charge capital gains tax on the compensation received by the assessee even on protective basis. Being aggrieved, the revenue has filed the present appeal.

The issue is whether the amount received by the society and its member on account of transferable development rights is taxable under capital gains.

The issue in dispute is covered by the decision of the ITAT in the case of Jethalal v DCIT wherein it was held that transferable development rights granted by the Development Control Regulations for Greater Mumbai, 1991, qualifying for equivalent floor space index having no cost of acquisition, sale thereof does not give rise to taxable capital gains. Since the facts of the case under consideration is identical to that of the decision of the ITAT in the said case, the CIT(A) was justified in directing the AO not to charge capital gains tax on the compensation received by the assessee even on a protective basis.

Amount received by the society and its member on account of transferable development rights is not taxable under capital gains — as held by MumTrib in ITO v Hemandas J. Pariyani — In favour of: The Assessee ; ITA No. 2508/Mum/2010 : Assessment Year: 1997–1998

Decided on: 29 April 2011