S 45. Beneficial ownership of the balance FSI and right to use TDR was that of the members of the society. The members transferred the rights and received consideration for such transfer.

The assessee-society was the owner of land together with two
buildings situated thereon. The society had sixteen members who held, on
ownership basis, sixteen flats in the said buildings. It was possible to
construct additional flats on the existing buildings by utilising balance FSI of
the property and FSI that may be obtained from other properties under the TDR
scheme. The total area of the property was 1063.60 sq. mts., it was possible to
construct 11,448 sq. feet on the said property by procuring TDR FSI.

The society, at its Special General Body Meeting held on 15th
July, 2001 passed a resolution to the effect that the benefit of constructing
additional flats by utilising any FSI available on the said property and by
bringing in TDR/FSI belongs to the members equally. Each member thus became
entitled to 715.50 sq. feet by way of TDR/FSI. The society agreed that each
member would be entitled at their own costs to procure proportionate TDR/FSI and
to use his/her respective entitlement for constructing a new flat for himself or
each member may grant development rights to a common developer.

The developer vide agreement dated 29-8-2001 agreed to pay to
the society an amount of Rs.1,76,000 as well as carry out works of repairs and
improvements to the existing buildings and compound of the society in
consideration of the society permitting the developer to construct additional
floors from the entitlement of each of the members of the society.

The developers agreed to pay each of the members a lump sum
of Rs.7,00,000 as compensation for inconveniences and hardships faced or to be
faced by the members during and on account of additional construction. Further,
in consideration of the member granting development rights in respect of his/her
entitlement to the developers, the developers agreed to pay the member a lump
sum monetary consideration of Rs.7,20,000.

In the course of assessment proceedings u/s.147, the assessee
took the stand that by virtue of a resolution passed by the Managing Committee
of the society, the society has specifically authorised each of the members to
sell and transfer their proportionate rights in the FSI and development of the
building with the consent of the society, which means the society has renounced
its rights in favour of individual members and on the basis of this resolution
and upon renouncement of the rights in favour of individual members, the members
were fully authorised and having accepted the renunciation, have a legal
sanction to sell their proportionate right to the builders for development. The
income received by individual members is their individual income and the same is
not liable to be taxed in the hands of the society. The members had filed their
return of income offering to tax receipts on sale of their rights. The AO held
that since the society is the owner of the plot of land, the FSI/TDR is
available to the society and individual members cannot transfer the FSI/TDR
directly to the developers. He taxed the entire compensation received (including
amounts received by the members) in the hands of the assessee.

Aggrieved, the assessee preferred an appeal to the
Commissioner of Income-tax (Appeals) who upon considering the definition of the
term ‘society’ as defined in the Maharashtra Co-operative Societies Act and also
the fact that the Bombay Stamp Act provides for payment of stamp duty by each
member at the time of purchase of individual flat and that such registered
agreements are deemed to be conveyance, held that capital gains have to be taxed
in the hands of the members of the society who have accounted for the same in
their individual returns of income. He allowed the appeal filed by the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

The Tribunal held that the order passed by the CIT(A) does
not call for interference. It held that the beneficial ownership was that of the
members of the society. It was the members who transferred the rights and
received consideration for such transfer. The Tribunal agreed with the view of
the CIT(A) holding the conclusion of the AO to the contrary to be not proper.

The appeal filed by the Revenue was dismissed.