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.