Case Note & Summary
The appeal was filed by Sunil Pran Sikand, legal heir of Pran Kishan Sikand, against an order of the Income Tax Appellate Tribunal (ITAT) dated 20th September 2002. The assessee owned a property at Khar, Mumbai, with a building having ground plus two floors. The ground and first floor were in his possession, and the second floor was in possession of his two sons. All three entered into a development agreement dated 29th September 1992 with Gokul Construction Company Private Limited (developer). The assessee received Rs.1.55 Crores, and each son received Rs.17,50,000/-. The assessee declared the amount as Long Term Capital Gain for Assessment Year 1994-1995. The appeal was admitted on 13th June 2006 with two substantial questions of law, and an additional question was framed on 23rd February 2024. The three questions were: (1) whether the Tribunal was justified in interpreting the development agreement holding that after receipt of consideration the appellant ceased to be owner; (2) whether the receipt of Rs.1,00,92,750/- as compensation for settlement of dispute is a capital receipt not liable to tax; and (3) whether the amount of Rs.1,00,17,750/- received for additional FSI is taxable when no cost was incurred. The court held that the Tribunal erred in its interpretation of the development agreement, as ownership did not pass merely on receipt of consideration. The receipt of Rs.1,00,92,750/- was a capital receipt, not revenue, and thus not taxable. The amount for additional FSI was also not taxable as there was no cost of acquisition. The appeal was allowed, and the questions were answered in favor of the assessee.
Headnote
A) Income Tax - Capital Gains - Development Agreement - Ownership - The Tribunal erred in holding that after receipt of consideration the assessee ceased to be owner of the property under the development agreement dated 29.9.1992 - The agreement did not transfer ownership but only granted development rights - Held that ownership continued until conveyance (Paras 1-3). B) Income Tax - Capital Receipt - Compensation for Settlement of Dispute - The receipt of Rs.1,00,92,750/- as compensation for settlement of dispute regarding allotment of flat is a capital receipt not liable to tax under the Income Tax Act, 1961 - Held that it was not revenue in nature (Paras 2-3). C) Income Tax - Capital Gains - Additional FSI - Cost of Acquisition - The amount of Rs.1,00,17,750/- received for additional FSI is not taxable as the assessee had not incurred any cost to acquire it - Held that no capital gains arise without cost of acquisition (Para 3).
Issue of Consideration
Whether the Tribunal was justified in interpreting the development agreement holding that after receipt of consideration the appellant ceased to be the owner of the property; whether the receipt of Rs.1,00,92,750/- is a capital receipt not liable to tax; whether the amount of Rs.1,00,17,750/- received from the developer for additional FSI is taxable when no cost was incurred to acquire it.
Final Decision
Appeal allowed. The questions of law are answered in favor of the assessee. The ITAT order is set aside.
Law Points
- Interpretation of development agreement
- ownership after receipt of consideration
- capital receipt vs revenue receipt
- taxability of compensation for settlement of dispute
- cost of acquisition of additional FSI
