Sai Ashish Bandra Co-op. Hsg. Soc. Ltd.
ITAT ‘E’ Bench, Mumbai
Before R. K. Gupta (JM) and A. K. Garodia (AM)
ITA No. 5232/Mum./2004
A.Y. : 2000-2001. Decided on : 22-8-2007
Counsel for revenue/assessee : K. Kamakshi/
Vijay Mehta
S. 28 and S. 45 — Gains arising to the society on sale of
50% of the areas constructed by the builder, at his own cost, by utilising
additional FSI received by society from BMC in lieu of roads taken over by BMC
are chargeable to tax as Capital Gains.
Per R. K. Gupta :
Facts :
The assessee co-operative society was formed in 1971. The
land on which the building of the society stood had roads on two sides. The
BMC acquired some part of the society’s land in 1991 and again in 1994 for the
purposes of road widening and as compensation therefor granted additional FSI
to the society which the society decided to utilise on existing building.
Accordingly, the society entered into an Agreement with the builder pursuant
to which the builder agreed to put up the entire construction at his own cost
and in turn would be entitled to 50% of the area of the constructed flats. The
society was entitled to the balance 50% of the area of the constructed flats.
The construction was completed in 1999. Upon completion of construction, the
flats coming to the share of the society were sold for Rs.1,06,18,000. The
sale consideration of flats was returned by the society as long term capital
gains. The AO reassessed this amount under the head ‘Income from Business’ on
the ground that the society did not have funds for construction and therefore
it indirectly has obtained loan from the builder and has instructed the
builder for appointing architect for getting various sanctions of plans and
approvals to construct the flats. These factors, according to him, were
indicative that the society was engaged in a trade with profit motive.
Aggrieved, the society preferred an appeal to the CIT(A)
where it contended that the income be assessed as long term capital gains or
alternatively, if it is assessed as business income, then, in terms of S.
45(2), fair market value of FSI on date of conversion should be taken as cost
for computing profits of the said business. The CIT(A) held that the income
was chargeable to tax as ‘Income from Capital Gains’.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held :
There is no evidence on record that the amount spent by the
assessee was loan. The builder was to put up construction at its own cost and
in turn would be entitled to 50% of the area of the constructed flats and
after completion of the project the remaining 50% of the area shall be given
to the society which can be sold by the society. BMC had allowed FSI to the
society in lieu of land taken over by the BMC. The Tribunal concurred with the
findings and decision of the CIT(A) viz. that there were no business
considerations in undertaking the transaction by the assessee, the assessee
could have either sold FSI or utilised it by constructing additional areas; by
deciding to utilise it in construction of additional areas it had maximised
its gains but maximisation of gains cannot by itself impress a transaction
with the character of business; the society did not have profit sharing
arrangement with the builder; the transaction under consideration cannot be
held to be a business transaction.
The Tribunal dismissed the appeal filed by the Revenue.
