Sri Komati Ramesh Babu, V. THE ITO, WARD - 1(2), Vijayawada

CO 90/VIZ/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9781 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 03-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Opportunity of being heard
• Section: 54F; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER SL.NO. ITA NO. AY APPELLANT RESPONDENT 1 226/V13 2008-09 INCOME TAX OFFICER, WARD 1(2), VIJAYAWADA SHRI KOMATI SUDHAKAR RAO, VIJAYAWADA. PAN AJZPK4256G 2 227/V/13 2008-09 -DO- SRI KOMATI SRINIVASA RAO, VIJAYAWADA. PAN CGVPK9161P 3 228/V/13 2008-09 -DO- SRI KOMATI PRAVEEN KUMAR PAN CGRPK3315D 4 229/V/13 2008-09 -DO- SRI KOMATI SURESH BABU, VIJAYAWADA PAN ALGPK4724L 5 230/V/13 2008-09 -DO- SRI KOMATI RAMESH BABU PAN ALWPK3624J AND SL.NO. C.O AY CROSS OBJECTOR RESPONDENT 6 86/V/13 (IN ITA NO. 226/V/13) 2008-09 SHRI KOMATI SUDHAKAR RAO, VIJAYAWADA. PAN AJZPK4256G INCOME TAX OFFICER, WARD 1(2), VIJAYAWADA 7 87/V/13 (IN ITA NO. 228/V/13) 2008-09 SRI KOMATI PRAVEEN KUMAR PAN CGRPK3315D -DO- 2 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS 8 88/V/13 (IN ITA NO. 227/V/13) 2008-09 SRI KOMATI SRINIVASA RAO, VIJAYAWADA. PAN CGVPK9161P -DO- 9 89/V/13 (IN ITA NO. 229/V/13) 2008-09 SRI KOMATI SURESH BABU, VIJAYAWADA PAN ALGPK4724L -DO- 10 90/V/13 (IN ITA NO. 230/V/13 2008-09 SRI KOMATI RAMESH BABU PAN ALWPK3624J -DO- REVENUE BY SHRI D. MANOJKUMAR ASSESSEE BY SHRI C. SUBRAMANYAM DATE OF HEARING 03-07-2014 DATE OF PRONOUNCEMENT 03 -07-2014 O R D E R PER BENCH.: ALL THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST IDENTICAL ORDERS OF THE CIT(A), ARE, DATED 29/01/2 013 FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE ALSO FILED C.OS., AND T HE SAME ARE IN SUPPORT OF THE ORDERS OF THE CIT(A). AS IDENTICAL ISSUES A RE INVOLVED IN THESE APPEALS AND C.OS, THEY WERE CLUBBED AND HEARD TOGET HER AND, THEREFORE, THESE APPEALS AND C.OS. ARE DISPOSED OF BY WAY OF T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS OF THESE CASES ARE THAT THESE FIVE ASSESSEES ARE BROTHERS. EACH ONE OF THEM OWNS 0.20 ACRES OF LAND AND THE COMBINED EXTENT OF LAND IS ABOUT 1 ACRE. THEY HAVE ENTERED I NTO DEVELOPMENT AGREEMENT WITH M/S SRI SAI CONSTRUCTIONS DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09 FOR DEVELOPMENT AND CONSTRUC TION OF 100 FLATS WITH AN UNDERSTANDING TO SHARE THE FLATS IN THE RATIO OF 39:61. EACH OF THE ASSESSEES RECEIVED 7 FLATS TO THEIR SHARE UNDER THE DEVELOPMENT 3 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS AGREEMENT. AS PER THE AO THE DEVELOPMENT AGREEMENT WITH THE BUILDERS AMOUNTED TO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT R.W.S. 53A OF THE TRANSFER OF PROPERTY ACT, 1882. THE AO I SSUED NOTICE U/S 148 OF THE ACT. AS THE ASSESSEE DID NOT RESPOND, SUMMON S WERE ISSUED BY THE AO. THE ASSESSEES FILED THEIR RETURNS OF INCOME BY ADMITTING NIL INCOME. EACH OF THE ASSESSEES WORKED OUT LONG TERM CAPITAL GAIN AND CLAIMED THE SAME AS EXEMPT U/S 54F OF THE ACT. THE AO WAS OF THE VIEW THAT THE ASSESSEES ARE ENTITLED FOR DEDUCTION U/S 5 4F OF THE ACT ONLY ON ONE RESIDENTIAL HOUSE. HE RESTRICTED THE CLAIM FOR EXEMPTION U/S 54F TO ONE FLAT ONLY. 3. ON APPEAL, THE FIRST APPELLATE AUTHORITY RELYING ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS . K.G. RUKMINIAMMA [2011] 331 ITR 211, GRANTED RELIEF TO THE ASSESSEES . 4. AGGRIEVED, THE REVENUE IS FILED THESE APPEALS BE FORE US. 5. THE LEARNED DR SHRI D. MANOJKUMAR SUBMITS THAT I NTERPRETATION PLACED BY THE LEARNED CIT(A) WOULD LEAD TO ABSURD R ESULTS FOR THE REASON THAT ALL DEVELOPMENT AGREEMENTS WILL BECOME TAX FRE E AS ONLY THE FLATS ARE GIVEN IN EXCHANGE OF DEVELOPMENT RIGHTS. HE PLEADED THAT THE VERY PURPOSE OF THE ACT WOULD BE DEFEATED. THE LEARNED D R RELIED ON THE DECISION OF THE D BENCH OF ITAT, CHENNAI IN ITA N O. 1865/MDS/2012 FOR AY 2009-10 IN THE CASE OF SHRI A. KODANDA RAMI REDD Y VIDE ORDER DATED 04/07/2013 AND SUBMITTED THAT THE BENCH CONSIDERED BOTH THE DECISIONS OF KARNATAKA HIGH COURT IN THE CASE OF K.G. RUKMINIAMM A (SUPRA) AND OTHER CASES AS WELL AS THE DECISION OF HONBLE AP HIGH CO URT IN THE CASE OF CIT VS. SYED ALI ADIL IN ITTA NO. 410 OF 2012 AND AFTER ANALYZING THE SAME, PREFERRED TO FOLLOW THE DECISION OF THE HONBLE PUN JAB & HARYANA COURT IN THE CASE OF PAWAN ARYA VS. CIT [2011] 49 DTR 123. HE PRAYED THAT THE ORDER OF THE AO BE RESTORED. 4 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS 6. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI C. SUB RAMANYAM, ON THE OTHER HAND, SUBMITTED THAT SECTION 54F IS A BENEFIC IAL SECTION AND WAS INTRODUCED FOR PROMOTION OF HOUSING. HE SUBMITTED T HAT THE TERM RESIDENTIAL HOUSE DOES NOT MEAN A SINGLE RESIDENT IAL HOUSE. HE DISPUTED THE SUBMISSION OF THE LEARNED DR THAT, THE PURPOSE OF THE ACT WOULD BE DEFEATED, BY POINTING OUT THAT THERE ARE NUMBER OF CONDITIONS TO BE FULFILLED TO AVAIL DEDUCTION U/S 54F OF THE ACT. HE POINTED O UT THAT ON COMMERCIAL BUILDINGS SUCH EXEMPTIONS ARE NOT ALLOWED. HE FURTH ER ARGUED THAT THE COURTS HAVE INTERPRETED SECTION 54F AND THE LAW IS WELL SETTLED THAT THE TERM RESIDENTIAL HOUSE DOES NOT MEAN A SINGLE RES IDENTIAL HOUSE. HE RELIED ON THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN CASE OF CIT VS. SYED ALI ADIL, JUDGMENT DATED 20/12/2012 IN ITTA NO. 410 OF 2012. HE ALSO RELIED ON THE DECISION OF THE ITAT, HYDERABAD BENCH IN THE CASE OF N. REVATHI VS. ITO, ITA NO. 67/HYD/2013 FOR AY 2007-08, ORDER DATED 02/04/2014. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE A UTHORITIES AS WELL AS THE DECISIONS CITED. ON CONSIDERATION OF THE FACTS OF THE CASE WE HOLD AS FOLLOWS: 7.1 THE LEARNED CIT(A) AT PARA 6(III) OF HIS ORDER AT PAGE 8 OBSERVED AS FOLLOWS: 6(III) THIS RELATES TO VARYING OF EXEMPTION CLAIMED UNDER SECTION 54F OF THE IT ACT, 1961. IT IS SEEN THAT THE APPELL ANT HAS CLAIMED SUCH EXEMPTION ON THE TOTAL NUMBER OF UNITS LIKELY TO BE ALLOTTED TO HIM, WHERE AS THE AO HAS RESTRICTED SUCH UNITS TO O NE ONLY. IT MAY BE NOTED HERE THAT THE PRESENT LEGAL OPINION IS THA T PROPERTY INCLUDES PLURAL UNITS OF PROPERTY BUT NOT A SINGLE UNIT, WHI CH STAND IS SUPPORTED BY THE DECISION OF THE KARNATAKA HIGH COU RT IN THE CASE OF CIT VS. K.G. RUKMINAMMA, REPORTED IN [2011] 196 TAX MAN 87 (KAR.). IT IS NOT THE NUMBER OF UNITS OF PROPERTY P URCHASED IS THE CRITERIA, BUT INVESTMENT OF CAPITAL GAINS IN PURCHA SE OF OR CONSTRUCTION OF PROPERTY IN ONE UNIT OR IN MORE THA N ONE UNIT IS THE CRITERION. THAT IS, IF THE ENTIRE LONG TERM CAPITAL GAINS WAS UTILIZED IN INVESTING IN A PROPERTY, MAY BE ONE UNIT OR NUMBER OF UNITS, IN CASE OTHER CONDITIONS OF SECTION 54F ARE SATISFIED THEN THE APPELLANT IS ELIGIBLE TO CLAIM EXEMPTION TO THE EXTENT OF UTILIZ ATION OF LONG TERM 5 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS CAPITAL GAINS. ONE DISTINGUISHING FEATURE ONE HAS T O KEEP IN MIND IS THAT THE PROPERTY SOLD (DEEMED) WAS IN THE HANDS OF THE APPELLANT, WHEREAS THE NEW PROPERTY (PROPERTIES) RECEIVABLE FR OM THE DEVELOPER OUT OF SUCH SALE PROCEEDS WERE ALSO IN THE HANDS OF THE SAME INDIVIDUAL. THUS, TAKING OVERALL PICTURE OF THE CAS E, I AM OF THE CONSIDERED OPINION THAT SINCE FUNDS ARE FROM THE IN DIVIDUAL AND THE NEW PROPERTIES PROPOSED TO BE TRANSFERRED OR CONSTR UCTED WERE ALSO IN THE HANDS OF THE SAME INDIVIDUAL, WHERE THE LONG TERM CAPITAL GAINS HAS NEXUS OF NEW INVESTMENTS, THE ACTION OF T HE AO IN DENYING EXEMPTION UNDER SECTION 54F IS NOT JUSTIFIED AND AC CORDINGLY HE IS DIRECTED NOT TO DENY EXEMPTION AND RECOMPUTE THE TO TAL INCOME ACCORDINGLY. 7.2 THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF N. REVATHI (SUPRA) AT PARA 10 & 11 HELD AS FOLLOWS: 10. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES A ND PERUSED MATERIALS ON RECORD AS WELL AS ORDERS OF THE REVENU E AUTHORITIES. THE SOLE ISSUE BEFORE US IS WHETHER THE BUILDING IN QUE STION CONSTRUCTED BY THE ASSESSEE ON WHICH EXEMPTION U/S 54F OF THE ACT HAS BEEN CLAIMED IS A RESIDENTIAL BUILDING AS CLAIMED BY THE ASSESSE E OR A BUILDING CONSTRUCTED FOR COMMERCIAL USE. AS CAN BE SEEN FROM THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS COME TO A CONCLUSIO N THAT THE BUILDING IS NOT A RESIDENTIAL BUILDING BASICALLY FOR THE REA SON THAT THE BUILDING IS USED FOR A SCHOOL. HOWEVER, ONLY BECAUSE THE BUILDI NG IS USED AS A SCHOOL CANNOT CHANGE THE NATURE AND CHARACTER OF TH E BUILDING FROM RESIDENTIAL TO COMMERCIAL. EVEN A RESIDENTIAL BUILD ING CAN BE USED AS A SCHOOL OR FOR ANY OTHER COMMERCIAL PURPOSE BUT THE RELEVANT FACTOR TO JUDGE IS WHETHER THE CONSTRUCTION MADE IS FOR RESID ENTIAL HOUSE OR FOR COMMERCIAL PURPOSE. IF THE BUILDING HAS BEEN CONSTR UCTED FOR RESIDENTIAL USE WITH ALL AMENITIES LIKE KITCHEN, BATH ROOM ETC. , WHICH ARE NECESSARY FOR RESIDENTIAL ACCOMMODATION THEN EVEN IF IT IS US ED AS A SCHOOL OR FOR ANY OTHER COMMERCIAL PURPOSE, IT CANNOT LOSE ITS CH ARACTER AS A RESIDENTIAL BUILDING. 11. HOWEVER, IF THE CONSTRUCTION IS MADE IN SUCH A WAY THAT IT IS NOT NORMALLY FOR RESIDENTIAL USE BUT PURELY COMMERCIAL USE, THEN IT CANNOT BE CONSIDERED TO BE A RESIDENTIAL HOUSE. THEREFORE, TH E PRIMARY FACT WHICH IS REQUIRED TO BE EXAMINED IS WHETHER THE BUILDING HAS BEEN CONSTRUCTED FOR RESIDENTIAL USE OR NOT. THIS CAN BE VERIFIED FR OM THE APPROVED PLAN AND ARCHITECTURAL DESIGN OF THE BUILDING. HOWEVER, THE PLAN OF THE CONSTRUCTED BUILDING HAS NOT BEEN BROUGHT ON RECORD EITHER BEFORE THE REVENUE AUTHORITIES OR BEFORE US. THEREFORE, IT IS DIFFICULT TO ARRIVE AT A CONCLUSIVE FINDING WITH REGARD TO THE NATURE OF THE BUILDING. IN THE AFORESAID VIEW OF THE MATTER, WE ARE INCLINED TO RE MIT THE MATTER BACK TO 6 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS THE FILE OF THE ASSESSING OFFICER WHO SHALL CONDUCT NECESSARY ENQUIRY TO FIND OUT THE EXACT NATURE OF CONSTRUCTION I.E., WHE THER IT HAS BEEN CONSTRUCTED FOR RESIDENTIAL USE OR FOR COMMERCIAL U SE. IF THE BUILDING HAS BEEN CONSTRUCTED FOR RESIDENTIAL USE WITH ALL AMENI TIES, WHICH ARE NECESSARY FOR A RESIDENTIAL ACCOMMODATION, THEN EXE MPTION U/S 54F CANNOT BE REFUSED ONLY BECAUSE IT IS BEING USED AS A SCHOOL SUBSEQUENTLY. SO FAR AS THE VIEW OF THE ASSESSING O FFICER THAT EXEMPTION U/S 54F OF THE ACT WILL BE AVAILABLE ONLY IN RESPECT OF ONE FLAT IS CONCERNED, WE DO NOT AGREE WITH THE SAME. LAW IS WELL SETTLED THAT A RESIDENTIAL HOUSE DOES NOT MEAN A SINGLE RESIDENTI AL HOUSE. EVEN WHERE THE ASSESSEE CONSTRUCTS OR RECEIVES A NUMBER OF FLATS ADJACENT TO EACH OTHER OR IN DIFFERENT FLOORS OF THE SAME BUILD ING THEN ALSO THE ASSESSEE WOULD BE ENTITLED FOR EXEMPTION U/S 54F OF THE ACT. IN THIS CONTEXT, WE RELY ON A DECISION OF THE HONBLE JURIS DICTIONAL HIGH COURT IN CASE OF CIT VS. SYED ALI ADIL, JUDGMENT DATED 20-12 -2012 IN ITTA NO.410 OF 2012. IN VIEW OF THE ABOVE, THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE ISSUE AF RESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE IN THE MATTER. 7.3 THE VIEW OF THE FIRST APPELLATE AUTHORITY IS CO NSISTENT WITH THE VIEW TAKEN BY THE JURISDICTIONAL TRIBUNAL IN THE CASE OF N. REVATHI (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDE R OF THE FIRST APPELLATE AUTHORITY AND DISMISS ALL THE APPEALS OF THE REVENU E. 8. AS THE C.OS. FILED BY THE ASSESSEE ARE IN SUPPOR T OF THE ORDERS OF THE CIT(A) AND THE ORDERS OF THE CIT(A) HAVE BEEN UPHELD BY US IN REVENUE APPEALS (SUPRA), THE C.OS. BECOME INFRUCTUO US. ACCORDINGLY, THE C.OS. FILED BY THE ASSESSEE ARE DISMISSED AS INFRUC TUOUS. 9. IN THE RESULT, APPEALS OF THE REVENUE AND C.OS. OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 03/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED: 3 RD JULY, 2014 KV 7 ITA NOS. 226 TO 230/VIZ/2013 & COS 86 TO 90/VIZ/13 KOMATI SUDHAKAR RAO AND OTHERS COPY TO:- 1) SRI KOMATI SUDHAKAR RAO AND OTHERS, D.NO. 6-71, SURYAPALEM, GOLLAPUDI, VIJAYAWADA RURAL. 2) ITO, WARD 1(2), 2 ND FLOOR, C.R. BUILDINGS, NEAR RYOT BAZAR, BANDAR ROAD, VIJAYAWADA 520 002. 3) CIT(A), VIJAYAWADA 4) CIT), VIJAYAWADA 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., VIZAG.