Sherlyn Dias (Mrs.) (Legal Heir of Late Mrs. Dorothy Lawrence Pereira) v. ITO

Case snapshot

Sections / provisions: 45; 54EC

Questions before the Court / Tribunal

• Compensation for development rights; capital gains: The reported case considers the tax character of compensation received in connection with development rights and the consequential capital-gains computation, including eligibility for section 54EC relief.

Material facts and background

Mrs. Dorothy Lawrence Pereira for the purpose of prosecuting the present appeal and the cause title shall stand amended accordingly. Facts of the Case 3.

The assessee, an individual, originally filed her return of

income for Assessment Year 2011-12 declaring total income of Rs.2,64,260/- on 18.06.2011. During verification of the return, the Assessing Officer noticed that the assessee had disclosed capital gains Rs.99,060/- and had claimed exemption under section 54EC of the Act in respect of investment made in REC Bonds. Since no scrutiny assessment under section 143(3) had been completed originally and the Assessing Officer was of the view that income chargeable to tax had escaped assessment, the assessment was reopened under section 147 of the Act by issuance of notice under section 148 dated 22.03.2018 after obtaining requisite administrative approval. In response thereto, the assessee filed a return of income declaring the same income of Rs.2,64,260/-

sections 143(2) and 142(1) of the Act were issued and complied with by the assessee. 4.

During the reassessment proceedings, the Assessing Officer

noticed that the assessee had received a sum of Rs.50,00,000/pursuant to a Development Agreement dated 02.08.2010 entered into with M/s. Gorwani Developers Pvt. Ltd. in relation to redevelopment of a property known as "Katy Kunj". The assessee

Mr s. S h er l y n Di a s (L e g al h ei r of L at e Mr s. Dor ot hy L a wr e n c e P er ei r a )

Appellant / assessee submissions

Ms. Ritu Punjabi, Ld. AR Shri AnnavaramKosuri, Ld. DR

Agreement dated 02.08.2010 as income chargeable under the head "Income from Other Sources". According to the AR, the impugned receipt represented consideration received by the assessee on transfer of valuable development rights in the property known as "Katy Kunj" and, therefore, the same could only be examined under the head "Capital Gains" and not under any other head of income. 17. The learned AR invited our attention to the relevant clauses of the Development Agreement dated 02.08.2010 and, in particular, to the recitals and operative clauses dealing with the grant of development rights and consideration payable to the owners. Referring to Recitals Q and R of the agreement, the learned AR submitted that the developers had approached the owners with a proposal to redevelop the property by demolishing the existing structure known as "Katy Kunj" and constructing a new building thereon. The owners, in turn, agreed to permit the developers to undertake redevelopment of the property on the terms and conditions specified in the agreement. It was emphasized that the transaction was not one of sale of land or building but a grant of development rights in favour of the developer for...

residential occupation. It was pointed out that the agreement expressly records that the owners agreed to grant development rights to the developers in respect of the property while simultaneously reserving and retaining the aforesaid FSI for construction of flats to be allotted to the owners in the redeveloped building. According to the learned AR, the very language

development rights in the property were granted to the developer for consideration and, therefore, there was a transfer of a valuable capital asset. 19. The learned AR further invited our attention to Clause 3 of the agreement, which records that apart from constructing flats for the owners and providing parking spaces, the developers had agreed

Revenue / respondent submissions

Ms. Ritu Punjabi, Ld. AR Shri AnnavaramKosuri, Ld. DR

property. The consideration was directly linked to the transfer of such rights and formed an integral part of the redevelopment arrangement. It was therefore contended that the receipt had an inextricable nexus with the transfer of a capital asset and could only be assessed under the head "Capital Gains". 21. The learned AR accordingly submitted that both the Assessing Officer and the learned CIT(A) erred in characterising the impugned receipt as a revenue receipt taxable under the head "Income from Other Sources". According to him, the terms of the Development Agreement itself clearly establish that the assessee had granted development rights in favour of the developer for agreed monetary consideration and, therefore, the receipt of Rs.50,00,000/- constituted consideration arising from transfer of a capital asset, entitling the assessee to the consequential benefit of exemption under section 54EC of the Act in respect of the investment made in REC Bonds. 22. Per contra, the learned Departmental Representative ("DR") strongly relied upon the orders of the Assessing Officer and the learned CIT(A). Inviting our attention to the findings recorded in the assessment order, the learned...

Court / Tribunal analysis and reasoning

Rs.50,00,000/-. During the appellate proceedings, a remand report dated 24.01.2024 was called for from the Assessing Officer. In the remand report, the Assessing Officer stated that no fresh evidence had been furnished by the assessee and that all relevant facts had already been examined during the assessment proceedings. It was therefore requested that the appeal be decided on the basis of the assessment order. 9.

development rights is assessable under the head "Capital Gains" and not under the head "Income from Other Sources". 10. On merits, the assessee reiterated before the CIT(A) that the Development Agreement dated 02.08.2010 was entered into for redevelopment of the building "Katy Kunj" and not for sale of the property. It was submitted that the amount received represented consideration for transfer of development rights, which itself constituted a capital asset. The assessee further submitted that the entire compensation had been invested in REC Bonds and therefore exemption under section 54EC was rightly claimed. Reliance was also placed upon the decisions in Jethalal D Mehata vs. DCIT(2 SOT 422) and Maheshwari Housing Pvt. Ltd. to contend that section 50C does not apply to transfer of development rights. 11. The

requirements had been duly complied with by the Assessing Officer. It was observed that notices under sections 148, 142(1) and 143(2) had been duly issued and served and that adequate opportunity of hearing had been granted to the assessee. The CIT(A) therefore rejected the challenge to the assessment proceedings. 14. As regards Ground No. 3 challenging the reopening under section 147, the CIT(A) observed that AIR information had indicated participation by the assessee in a property transaction involving reported consideration of Rs.2,00,00,000/- and stamp duty valuation of Rs.3,45,51,000/-. According to the CIT(A), such information constituted tangible material giving rise to a prima facie

Agreement dated 02.08.2010 as income chargeable under the head "Income from Other Sources". According to the AR, the impugned receipt represented consideration received by the assessee on transfer of valuable development rights in the property known as "Katy Kunj" and, therefore, the same could only be examined under the head "Capital Gains" and not under any other head of income. 17. The learned AR invited our attention to the relevant clauses of the Development Agreement dated 02.08.2010 and, in particular, to the recitals and operative clauses dealing with the grant of development rights and consideration payable to the owners. Referring to Recitals Q and R of the agreement, the learned AR submitted that the developers had approached the owners with a proposal to redevelop the property by demolishing the existing structure known as "Katy Kunj" and constructing a new building thereon. The owners, in turn, agreed to permit the developers to undertake redevelopment of the property on the terms and conditions specified in the agreement. It was emphasized that the transaction was not one of sale of land or building but a grant of development rights in favour of the developer for...

development rights in the property were granted to the developer for consideration and, therefore, there was a transfer of a valuable capital asset. 19. The learned AR further invited our attention to Clause 3 of the agreement, which records that apart from constructing flats for the owners and providing parking spaces, the developers had agreed

property. The consideration was directly linked to the transfer of such rights and formed an integral part of the redevelopment arrangement. It was therefore contended that the receipt had an inextricable nexus with the transfer of a capital asset and could only be assessed under the head "Capital Gains". 21. The learned AR accordingly submitted that both the Assessing Officer and the learned CIT(A) erred in characterising the impugned receipt as a revenue receipt taxable under the head "Income from Other Sources". According to him, the terms of the Development Agreement itself clearly establish that the assessee had granted development rights in favour of the developer for agreed monetary consideration and, therefore, the receipt of Rs.50,00,000/- constituted consideration arising from transfer of a capital asset, entitling the assessee to the consequential benefit of exemption under section 54EC of the Act in respect of the investment made in REC Bonds. 22. Per contra, the learned Departmental Representative ("DR") strongly relied upon the orders of the Assessing Officer and the learned CIT(A). Inviting our attention to the findings recorded in the assessment order, the learned...

Operative decision and relief

Mr s. S h er l y n Di a s (L e g al h ei r of L at e Mr s. Dor ot hy L a wr e n c e P er ei r a )

अपीलाथी / The Appellant प्रत्यथी / The Respondent. सं बंधधत आयकर आयु क्त / The CIT(A) आयकर आयु क्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai

सत्याधपत प्रधत //True Copy// उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai

Authorities and precedents appearing in the judgment

• KCP Ltd. vs. CIT(245 ITR 421)
• Supreme Court in CIT vs. D.P. Sandu Bros. Chembur (P.) Ltd
• Dwarkadas Kapadia vs. CIT (260 ITR 491) to contend that
• Reliance was also placed upon the decisions in Jethalal D Mehata vs. DCIT(2 SOT 422) and Maheshwari Housing Pvt. Ltd. to
• Supreme Court in KCP Ltd. vs. CIT (245
• Supreme Court in CIT vs. D.P. Sandu Bros. Chembur (P.) Ltd.(273 ITR 1) is apposite
• Chaturbhuj Dwarkadas Kapadia vs. CIT(260 ITR 491)also

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Compensation for development rights; capital gains. The operative result is classified as Quashed / set aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Compensation for development rights; capital gains. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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