|DATE:||(Date of pronouncement)|
|DATE:||May 19, 2011 (Date of publication)|
|Click here to download the judgement (chiranjeev_development_rights_transfer.pdf)|
Granting development rights for demolition & reconstruction of building results in “transfer of land & building”
The assessee, being owner of land and building, entered into an agreement with the developer pursuant to which the developer demolished the building and constructed a new building. The FSI on the land was retained by the assessee. The additional FSI required for construction was brought in by the developer. The assessee received Rs. 2.18 crores from the developer for permitting the development which was offered to tax as capital gains. The AO & CIT (A) held that as the stamp duty value of the property was Rs. 3.82 crores that had to be taken as the consideration u/s 50C. On appeal to the Tribunal, the assessee claimed that the transaction was not subject to capital gains at all on the ground that (i) the grant of development rights was not a “transfer” (ii) there was no “cost of acquisition” of the development rights. It was also argued that s. 50C did not apply to development rights: HELD dismissing the appeal:
(i) The assessee’s argument that in the grant of development rights, there is no transfer of land or FSI (since the developer brought additional FSI) is not acceptable because (i) the assessee itself argued before the AO (to contest the AO’s proposal to tax the gains as business income) that there was a “transfer” of a capital asset and (ii) there was demolition of an existing building and it was not merely a case of construction of additional floor/modifications on the existing structure. Consequently, there was a transfer of “land & building” in favour of the developer;
(ii) The assessee’s argument (relying on New Shailaja Co-op Hsg Soc) that there is no “cost of acquisition” is also not acceptable because while in that case the assessee had become entitled to additional FSI owing to the DC Regulations for which there was no cost, the present was one of “transfer of existing land and building” which was demolished by the builder for fresh construction and the documents were registered (Jethalal D Mehta 2 SOT 422 (Mum), Lotia Court Coop Hsg Soc 118 TTJ 199 (Mum), New Shailaja Coop Hsg Soc, Om Shanti Coop Soc etc not followed);
(iii) The argument on s. 50C is also not applicable because it is a case of “transfer of land and building” to the developer.