Section 2(24), Section 45 — Mere grant of consent by the land owner to the developer to construct by consuming TDR purchased by the developer from third party does not amount to transfer of land/or any rights therein — Amount of compensation paid by the developer to the members of the society cannot be taxed in the hands of the society.
Facts: The assessee, a co-operative housing society, having 51 members was the owner of the plot of land admeasuring 3316 sq. mts together with Raj Ratan Palace building in front and a bungalow and other structures thereon. The entire FSI of the said property was already fully consumed in the construction of the multistoried building and the bungalow/structures on the said property. The society invited offers from builders and developers for redevelopment of its property by construction of a new multistoried building behind the Raj Ratan Palace building by means of TDR from elsewhere and by consumption of available FSI of the said property after demolishing the existing bungalow. The offer of M/s. New India Construction Co. (‘the Developer’) was accepted by the society and the terms and conditions agreed upon by the society, the developer and the members of the society were recorded in an agreement dated May 18, 1996. The said agreement in clause 12 provided that the developer will pay compensation at Rs.1431 per sq.ft. to the society and its members. The sum was quantified at Rs.2,00,16,828. Of this only a sum of Rs.2,51,000 was paid to the assessee and the balance amount was to be paid to the members. Clause 13 provided that in case the developers desire to utilise more TDR than what is stated in clause 12, then the developers shall pay to the society and the individual members of the society proportionately additional compensation @ Rs.1341 per sq.ft. of net proposed built-up area and the amount was to be paid to the society and the individual members in the manner provided in their individual agreements. Accordingly, the developers paid a sum of Rs.2,51,000 to the assessee-society and the balance sum was paid to the individual members of the society under 51 different agreements.
The assessee-society in its return of income filed for A.Y. 1997-98 did not offer any sum for taxation. The Assessing Officer (AO) asked the assessee to show cause why the sum of Rs.3,02,16,828 (aggregate of amounts paid by the developer to the society and its members) should not be regarded as income of the assessee since the assessee was the owner of the land and the assessee had allowed the developer to construct multi- storied building on land belonging to it. The AO held that the agreements between the developer and the 51 members were only to facilitate the payment by the developer. He, accordingly, taxed Rs.3,02,16,828 as income of the society u/s.2(24).
Aggrieved the assessee preferred an appeal to the CIT(A) who held that the amount under consideration is chargeable to tax in the hands of the assessee, subject to grant of indexation and also credit for taxes paid by the individual members on the amounts received by them.
Aggrieved the assessee preferred an appeal to the Tribunal where it was contended that the right to use TDR, even assuming was a capital asset, did not have cost of acquisition; consideration received for assigning right to receive TDR was not liable to tax in view of the decisions of the Tribunal; in the case of 21 members of the assessee the Tribunal has upheld the taxability of amount received from the developer.
Held:
The Tribunal held that no part of the land was ever transferred by the assessee. The assessee did not part with any rights and did not receive any consideration except a sum of Rs.2,51,000. The sum so received was for merely granting consent to consume TDR purchased by the developer from a 3rd party. The assessee continues to be the owner of the land and no change in ownership of land has taken place. Mere grant of consent will not amount to transfer of land/or any rights therein. The Tribunal observed that “In such circumstances, we fail to see how there could be any incidence of taxation in the hands of the assessee.” It also noted that the order passed by the AO was vague and did not clarify whether the sum in question was brought to tax as capital gain or as income u/s.2(24). It was of the view that neither of the above provisions can be pressed into service for bringing the sum in question to tax in the hands of the assessee. It also noted that some of the individual members had offered the receipts from the developer to tax and the same has also been brought to tax in their hands. The Tribunal directed that the addition made to the income of the assessee be deleted.
The appeal filed by the assessee was allowed.
Facts:
For non-deduction of tax at source from the payments made towards advertisement expenses, the AO disallowed the sum of Rs.5.10 lac and taxed the same as business income. Before the CIT(A) the assessee contended that since its income is not chargeable u/s.26 to section 44AD under the head ‘Business income’, the provisions of section 40(a)(ia) were not applicable. However, the CIT(A) upheld the order of the AO. Held: Relying on the Amritsar Tribunal decision in the case of ITO v. Sangat Sahib Bhai Pheru Sikh Educational Society, (ITA Nos. 201 to 203/ASR/2004, dated 31- 3-2006), which in turn was based on the Mumbai Tribunal decision in the case of CIT v. India Magnum Fund, (74 TTJ 620), the Tribunal accepted the contention of the assessee and allowed the appeal of the assessee.
