Pramod Kumar, A.M. - (1.) THE short and interesting issue requiring our adjudication in this appeal is the issue of taxability of receipts on account of sale of additional floor space index received by the assessee, by the virtue of 'transferable development rights' (hereinafter referred to as the TDRs,) under the 'Development Control Regulations for Greater Mumbai 1991'.
(2.) The scheme of the Development Control Regulations for Greater Mumbai 1991 (hereinafter referred to as the DCR,), so far as it pertains to the issue in appeal before us, is like this Regulation 34(1) of the DCR provides that the owner or lessee of a plot, which is reserved for public purposes under the development plan of the DCR, will be eligible for award of compensation by way of 'development right certificates' (hereinafter referred to as the DRCs) of equivalent floor space index (hereinafter referred to as the FSI). In other words, in consideration of plot being reserved for public purposes under the development plan, the person who so loses his plot gets certain development rights for availing additional floor space index equivalent to the floor space index so lost for public purposes. The development rights are transferable in nature in the sense that either the person receiving the DRCs can use these rights himself or transfer the same to any other person. However, these development rights cannot be used everywhere and certain limitations for the use of these development rights are set out in Regulation 34 itself. The plots on which these development rights can be used are termed as 'receiving plots'. On these plots, in addition to whatever floor space index was originally available to the owners or lessors of such plots, additional floor space index can be allowed to the owners or lessors, on using the transferable development rights contained in DRCs, for the purpose of construction of building. The assessee before us is a person who is owner of, what is termed in DCR as a 'receiving plot'. The assessee had acquired the leasehold rights in that plot of land in the month of October 1971 and thereafter the assessee constructed the two storey building containing some flats. All these flats were given on monthly tenancy to several tenants. By constructing the said building, the available FSI was fully exhausted. It was in the year 1991 and by the virtue of 'Development Control Regulations for Greater Mumbai 1991' that the assessee became owner of the valuable right of availing additional floor space index under through transferable development rights. He has entered into an arrangement with a developer who has used TDRs on assessee's plot to avail additional floor space index. Additional storeys of the building were thus constructed, which, under the arrangements that the assessee had with developer, belonged to the developer. In consideration of allowing the said developer to construct on the said additional floor space, the assessee has received a consideration of Rs. 33,62,500. The right to construct this additional floor space have been thus assigned to the developer and in consideration of this assignment, the said sum of Rs. 33,62,500 is received. The dispute which has travelled in appeal before us is whether or not this amount is taxable in the hands of the assessee. The assessee's contention that there was no cost of acquisition of this right as 'receiving plot', and, therefore, the sale of this right cannot lead to a taxable capital gain in the hands of the assessee, did not find favour with the assessing officer. The assessing officer was of the view that 'it is not correct to say that there is no cost of acquisition of additional FSI under the transfer of development rights' and that' the assessee has incurred the cost of acquiring the lease hold land in 1971 as well as incurred the cost for constructing the building on the said land'. The assessing officer was of the view that 'the assessee has acquired the additional FSI under TDR only because he had receiving plot in his hand'. On this reasoning the assessing officer of the view that cost of acquisition of the receiving plot is to be spread over entire floor space including the additional floor space granted under the 'Development Control Regulations for Greater Mumbai 1991. The assessing officer also relied upon the decision of the Special Bench of this Tribunal in the case of Cadell Wvg. Mill Co. (P.) Ltd. v. Asst. CIT (1995) 55 ITD 137 (Bom.). It was in this backdrop that the assessing officer brought to tax the entire consideration on assignment of additional floor space index as long-term capital gain'. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) approved assessing officer's reliance on Special Bench decision in the case of Cadell Wvg. Mill Co. (P.) Ltd. (supra), as also the stand that the cost of acquisition of the rights assigned is the cost of acquisition of the plot in question. The CIT(A) also held that 'the assessee got his designs approved from the Corporation and constructed the building on that plot', and that 'only after so much of expenditure he got the tenancy rights to transfer the open portion of the property to some person as per the law'. The CIT(A) went on to observe that "As per the provisions of section 55, the provisions of section 55 the transfer of tenancy right is fully covered in the definition as per Finance Act, 1994, with effect from 1-4-1995". As regards the applicability of Hon'ble Supreme Court's judgment in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294(SC) the CIT(A) observed that "the person having TDR right had to surrender his land to the Government to purchase these rights and also the right to construct on the property of the assessee and, therefore, it cannot be said that there is no cost of acquisition. The CIT(A) thus approved the stand of the assessing officer. The assessee is not satisfied with the order of the CIT(A) and is in appeal before us.
(3.) WE have heard Shri Jhaveri, learned counsel for the assessee, and Shri Bose, learned Senior departmental Representative. WE have also perused the material before us and duly considered factual matrix of the case as also the applicable legal position,;