Capital Gains – Amount received on sale of additional benefit derived by the assessee by way of getting vested with additional FSI on the land and building owned by the assessee is only a windfall gain by operation of law and which had not cost the assessee any money is a capital receipt Book Profits – A particular receipt which is in the capital field cannot be brought to tax u/s 115JB merely on the ground that the assessee has voluntarily offered it in the return of income

Book Profits – A particular receipt which is in the capital field cannot be brought to tax u/s 115JB merely on the ground that the assessee has voluntarily offered it in the return of income

FACTS
The assessee company owned land along with super structure which was acquired by it vide a sale deed dated 15th April, 1967. During the financial year relevant to the assessment year under consideration, the assessee company proposed to sell the said land along with its super structure. In the course of negotiations it became aware that post acquisition of land and constructed building, the Development Control Regulations (DCR) in the city of Coimbatore had undergone a change resulting in the company obtaining an additional benefit by way of additional FSI of 0.8.

The company sold the said land along with super structure vide a deed of sale on 23rd January, 2013 for a consideration of Rs. 11,14,00,000. Taking the help of the valuer, Rs. 4,76,25,000 out of this composite consideration was attributed to the additional FSI obtained as a result of the amendment in the DCR. In the return of income filed, the assessee regarded the sum of Rs. 4,76,25,000 received towards additional FSI as a capital receipt. However, while computing the book profit u/s 115JB, the said sum of Rs. 4,76,25,000 was included in the book profit.

The A.O. brought this sum of Rs. 4,76,25,000 to tax as long-term capital gains. This amount was also treated as part of book profits u/s 115JB since it was already offered to tax voluntarily by the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O.

The aggrieved assessee preferred an appeal to the Tribunal where it also raised an additional ground, viz., that the sum of Rs. 4,76,25,000 being a capital receipt is not part of the operating results of the assessee and therefore is not includible in computing its book profits u/s 115JB.

HELD
The Tribunal observed that the total sale consideration of Rs. 11,14,00,000 has not been doubted by the Revenue. The break-up of consideration, as done by the assessee, by relying on the independent valuer’s report was also not doubted by the Revenue. The only dispute was whether the said sum of Rs. 4,76,25,000 could be treated as a capital receipt thereby making it non-exigible to tax both under normal provisions as well as in the computation of book profits u/s 115JB.

The Tribunal held that the assessee could not have pre-empted any change in the DCR in the city of Coimbatore at the time of purchase or before sale. Admittedly, no cost was incurred by the assessee for getting such benefit by way of additional FSI. Hence, it could be safely concluded that the additional benefit derived by the assessee by way of additional FSI on the land and building owned by him is only a windfall gain by operation of law and which had not cost him any money. The Tribunal found that the entire issue in dispute is squarely covered by the decision of the Jurisdictional High Court in the case of Kailash Jyoti No. 2 CHS Ltd. and others dated 24th April, 2015. Following this decision, the Tribunal held that the sum of Rs. 4,76,25,000 received by the assessee on the sale of additional FSI is not exigible for long-term capital gains. It directed that the same be excluded under the normal provisions of the Act.

While deciding the additional ground, the Tribunal observed that there is absolutely no dispute that the receipt of Rs. 4,76,25,000 is indeed a capital receipt and the same does not form part of the operational working results of the assessee company. Even according to the Revenue, the said receipt is only inseparable from the land and building and accordingly it only partakes the character of a capital receipt. The Tribunal held that merely because a particular receipt, which is in the capital field, has been offered to tax by the assessee voluntarily in the return of income while computing book profits u/s 115JB it cannot be brought to tax merely on that ground. It is very well settled that there is no estoppel against the statute. It noted that the dispute is covered by the Tribunal in the assessee’s own case in ITA No. 5428/Mum/2015 for A.Y. 2011-12, order dated 17th December, 2021.

Following this decision, the Tribunal held that the sum of Rs. 4,76,25,000 being a capital receipt from its inception is to be excluded while computing book profits u/s 115JB and also on the ground that it does not form part of the operational working results of the company.

The Tribunal allowed both the grounds of appeal filed by the assessee.