Sections 2(47), 45 – Amount received by assessee, owner of a flat in a co-operative housing society, from a developer under a scheme of re-development was integrally connected with transfer of old flat to developer for purpose of re-development, in lieu of which assessee received the said amount and a new residential flat – To be treated as income under head ‘capital gain’

3.       [2020] 115 taxmann.com 7 (Mum.)

Pradyot B. Borkar vs. ACIT

ITA No. 4070/Mum/2016

A.Y.: 2011-12

Date of order: 17^th January, 2020

Sections 2(47), 45 – Amount received by assessee, owner of a flat in a co-operative housing society, from a developer under a scheme of re-development was integrally connected with transfer of old flat to developer for purpose of re-development, in lieu of which assessee received the said amount and a new residential flat – To be treated as income under head ‘capital gain’

FACTS

The assessee, an individual, filed his return of income declaring total income of Rs. 32,30,000. The A.O., in the course of assessment proceedings noted that the assessee has offered long-term capital gain of Rs. 31,12,638, towards sale of residential flats at C-20, 179, MIG, Bandra, Mumbai, and has simultaneously claimed deduction u/s 54 of the Act.

The A.O. found that the assessee owned a flat in the housing society which was given for development under a scheme of re-development. As per the terms of the development agreement between the housing society and its members, in addition to receiving a new residential flat after re-development, each member was also entitled to receive an amount of Rs. 53,80,500, comprising of the following:

The A.O. held that the amount received is not in any way related to transfer of capital asset giving rise to capital gain. He assessed the amount of Rs. 53,30,500 under the head ‘Income from Other Sources’.

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

HELD

The Tribunal noted that in the return of income the assessee has offered the amount of Rs. 53,50,500 as income from long-term capital gain. But the A.O. has held that the amount is in the nature of compensation received due to some specific factors and not related to transfer of capital asset. He also observed that as per the terms of the development agreement, any capital gain arising due to re-development would accrue to the housing society. Therefore, the compensation received, Rs. 53,50,500, cannot be treated as capital gain.

The Tribunal held that the amount of Rs. 53,50,500 was received by the assessee only because of handing over the old flat for the purpose of re-development. Therefore, the said amount is integrally connected with the transfer of his old flat to the developer for re-development in lieu of which he received the said amount and a new residential flat. Therefore, the amount of Rs. 53,50,500 has to be treated as income under the head ‘Capital Gain’. The Tribunal observed that the decision of the Co-ordinate Bench in Rajnikant D. Shroff [ITA No. 4424/Mum/2014, dated 23^rd September, 2016] supports this view. It held that the amount of Rs. 53,50,500 has to be assessed under the head ‘Capital Gain’.

This ground of appeal filed by the assessee was allowed.