P.Raghunadha Rao, C/o S.Ramarao, Advacate, Hyderabad V. THE ITO, WARD - 3(1), Visakhapatnam

ITA 12/VIZ/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6624 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SANKARANARAYANAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition
• Section: 50C; 54F; 147; 27; 148; 54; 2; 11; 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 12 /VIZ/ 201 4 ( / ASSESSMENT YEAR: 20 0 6 - 0 7 ) P.RAGHUNADHA RAO C/O SRI S.RAMA RAO, ADVOCATE FLAT NO.102, SHRIYAS ELEGANCE H.NO.3 - 6 - 643 ST.NO.9, HIMAYATNAGAR HYDERABAD - 500 029 [ PAN : AJCPR1004G ] THE INCOME TAX OFFICER WARD - 3(1), VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) ./ I.T.A.NO. 13 /VIZ/2014 ( / ASSESSMENT YEAR:2006 - 07) THE INCOME TAX OFFICER WARD - 3(1), VISAKHAPATNAM P.RAGHUNADHA RAO C/O SRI S.RAMA RAO, ADVOCATE FLAT NO.102, SHRIYAS ELEGANCE H.NO.3 - 6 - 643 ST.NO.9, HIMAYATNAGAR HYDERABAD - 500 029 [ PAN :AJCPR1004G] ( / APPELLANT) ( / RESPONDENT) / A SSESSEE BY : SHRI G.V.N.HARI, AR / REVENUE BY : S HRI S. R. SANKARANARAYANAN, DR / DATE OF HEARING : 31 . 0 8 .2017 / DATE OF PRONOUNCEMENT : 06 . 10 .2017 2 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THESE CROSS APPEAL S ARE FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT (A) ] , VISAKHAPATNAM VIDE ITA . NO. 557/11 - 12 /ITO, WARD - 3(1)/VSP/2013 - 14 DATED 31 . 10 .201 3 FOR THE ASSESSMENT YEAR 2006 - 07. I.T.A.NO.13 /VIZ/2014 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.3,02,130/ - , THE RETURN WAS PROCESSED U/S 143(1) OF I.T.ACT AND SUBSEQUENTLY REOPENED THE ASSESSMENT U/S 147 BY ISSUE OF NOTICE U/S 148 OF IT ACT ON 16 . 10 . 2006 . THE ASSESSEE HAS ACQUIRED THE VA CANT LAND OF 1000 SQ.YDS. IN A PLOT OF 1500 SQ.YARDS IN SURVEY NO.T.S.NO.10, ROAD NO.12, BANJARA HILLS, HYDERABAD ON 23.03.1999 BY AN AGREEMENT OF SALE CUM POWER OF ATTORNEY . THE CITED PLOT WAS GIVEN FOR DEVELOPMENT TO M/S PRAJAY ENGINEERS SYNDICATE LTD (DEVELOPER) VIDE AGREEMENT DATED 24.12.2000 ON SHARING OF CONSTRUCTED AREA @ 50:50 BASIS. THE SAID DEVELOPMENT AGREEMENT WAS SUBSEQUENTLY MODIFIED BY 3 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO MOU DATED 24 . 04 . 2003 WITH THE SPECIFIC IDENTIFICATION OF ROW HOUSES TO BE ALLOTTED TO THE ASSESSEE. THE ASSESSEE AGREED TO PAY THE DIFFERENCE IN THE CONSTRUCTED AREA RECEIVED AS PER MOU OVER AND ABOV E THE 50% SHARE OF THE CONSTRUCTED AREA A CCORDING TO THE PREVAILING MARKET RATE. ACCORDINGLY, THE ASSESSEE GOT FOUR ROW HOUSES WITH THE BUILT - UP AREA OF 12,544.62 SQ.FT IN THE YEAR 2005 - 06 WITH UNDIVIDED SHARE OF LAND 767 SQ . YARDS. OUT OF THE FOUR ROW HOUSES RECEIVED THREE ROW HOUSES WERE SOLD FOR A CONSIDERATION OF RS.88,00,000/ - @29,50,000/ - FOR EACH ROW HOUSE N O . 8 AND 5 AND FOR RS.29,0 0,000/ - FOR ROW HOUSE NO. 3 . THE MARKET VALUE OF THE ROW HOUSES RECEIVED BY THE ASSESSEE WAS D ETERMINED AT RS.1,41,26,893/ - . THE ASSESSEE ADMITTED THE ACTUAL CONSIDERATION RECE IVED FOR S ALE OF FLAT NOS.3, 5 AND 8 AMOUNTING TO RS.88,00,000/ - FOR CAPITAL GAINS IN THE ASSESSMENT YEAR 2006 - 07 AND CLAIMED THE DEDUCTION U/S 54F OF INCOME T AX A CT AND THE DIFFERENCE WAS ADMITTED FOR CAPITAL GAINS. 2.1. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TRANSFER OF LAND IN EXCHANGE OF ROW HOUSES WAS TAXABLE AS LONG TERM CAPITAL GAINS IN THE F.Y.2005 - 06 RELATED TO THE A.Y.2006 - 07 THE YEAR IN WHICH THE FLATS WERE 4 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO HANDED OVER TO THE ASSESSEE BY THE DEVELOPER, AND THE MARKET VALUE OF THE FLATS REQUIRED TO BE TAKEN AS THE CONSIDERATION FOR TRAN SFER OF LAND AND ACCORDINGLY THE MARKET VALUE OF RS. 1,42,26,893/ - , FOR FOUR ROW HOUSES WAS BROUG HT TO TAX AND ALLOWED THE INDEX ED COST OF ACQUISITION AMOUNTING TO RS.7,04,849/ - AND THE BALANCE AMOUNT OF RS.1,35,22,044/ - WAS ASSESSED AS LONG TERM CAPITAL GAINS TAX . THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM FOR DEDUCTION U/S 54F OF INCOME TAX . 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND THE LD.CIT (A) OBSERVED THAT THE ASSESSEE HAD TRANSFERRED THE VACANT SITE OF 1000 SQ.YDS FOR DEVELOPMENT, IN EXCHANGE RECEIVED 767 SQ.YDS OF LAND AND 12 , 544 SQ.FT BUILT UP AREA IN THE FORM OF FOUR ROW HOUSES. THE LD.CIT(A) FURTHER OBSERVED THAT THE SALE OF ROW HOUSES COMPRISES SALE OF LONG TERM ASSET I.E. LAND AND SALE OF SHORT TERM ASSET I.E BUILT UP AREA. THE LD.CIT(A) OBSERVE D THAT THE CONSTRUCTED AREA CAME TO EXISTENC E AND HELD BY THE ASSESSEE IN THE YEAR 2005 - 06 AND THEREFORE IT WOULD TAKE THE CHARACTER OF SHORT TERM CAPITAL ASSET. THE LAND WAS ACQUIRED BY THE ASSESSEE IN 1999 AND SOLD IN THE YEAR 2005 - 06 AND HENCE IT WAS A LONG TERM CAPITAL 5 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO ASSET. THE LONG TERM CA PITAL GAINS IN RESPECT OF LAND REQUIRED TO BE ASCERTAINED WITH REFERENCE TO COST OF ACQUISITION OF LAND , AND THE COST OF ACQUISITION OF BUILT UP AREA HAS TO BE ASCERTAINED WITH REFERENCE TO THE COST OF CONSTRUCTI ON OF THE BUILDING. ACCORDINGLY, THE LD.CIT(A) HELD THAT THE COST OF CONSTRUCTED AREA TO THE DEVELOPER SHOULD BE TAKEN AS COST OF ACQUISITION WITH REGARD TO ROW HOUS ES SOLD. SINCE THE ASSESSEE HAS SOLD THE CONSTRUCTED AREA IN LESS THAN ONE YEAR , IT CAN NOT BE CONSIDERED AS LONG TERM CAPITAL ASSET AND AS A RESULT THE CONSIDERATION RECEIVED BY THE ASSESSEE ON SALE OF ROW HOUSES WOULD BE ASSESSABLE TO SHORT TERM CAPITAL GAINS AND NOT ELIGIBLE FOR INDEX ED COST OF ACQUISITION. THE LD.CIT(A) FURTHER HELD TH AT THE ASSESSEE HAS SOLD THREE ROW HOUSES BEARING NO 3, 5 AND 8 DURING THE YEAR 2005 - 06 AND THE ROW HOUSE N O.4 WAS SOLD IN THE YEAR 2006 - 07. THE INCIDEN CE FOR TAXATION IN THE YEAR 2005 - 06 WAS ON ACCOUNT OF THREE ROW HOUSES WHICH ALONE SHOULD BE TAKEN FOR C HARGING TO CAPITAL GAINS FOR THE ASSESSMENT YEAR 2006 - 07. THE L D.CIT(A) ALSO UPHELD THE VALUE AS PER THE STAMP VALUATION AUTHORITY U/S 50C OF I NCOME T AX A CT, WHICH AMOUNTS TO RS.89,51,843/ - AGAINST THE MARKET VALU E ADOPTED BY THE AO. 6 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO 3.1. WITH REGARD TO BE TAXABILITY OF CAPITAL GAINS IN RESPECT OF TRANSFER OF LAND IN EXCHANGE OF ROW HOUSE , THE LD.CIT(A) HELD THAT PROPERTY WAS GIVEN FOR DEVELOPMENT IN THE YEAR 2000 - 01 AND THE MUNICIPAL PLANS FOR CONSTRUCTION WAS OBTAINED IN 2003. THE ASSESSING O FFICER DID NOT DISPUTE THE TRANSFER OF LAND UNDER THE DEVELOPMENT AGREEMENT IN THE YEAR 2000 - 01 . AS PER THE DEVELOPMENT AGREEMENT DATED 24.09.2000, THE ENTIRE COST OF CONSTRUCTION HAS TO BE BORNE BY THE DEVELOPER AND THE DEVELOPER IS ENTITLED TO MORTGAGE , HYPOTHECATE OR TO CREATE MORTGAGE IN RESPECT OF ITS SHARE OF 50% CONSTRUCTED AREA. IN THE SUBSEQUENT SALE DEEDS EXECUTED BY THE ASSESSEE IN RESPECT OF THE ROW HOUSES TO THIRD PARTIES, THE DEVELOPER M/S PRAJAY ENGINEERING SYNDICATE S LTD. WAS ALSO SHOWN A S CO - VENDOR AND BUILDER OF THE HOUSES. IN VIEW OF THE RECITAL S OF SALE DOCUMENTS AND THE DEVELOPMENT AGREEMENT, THE LD.CIT(A) HELD THAT THERE WAS TRANSFER IN THE CONTEXT OF SECTION 2(47) OF THE A CT UNDER THE DEVELOPMENT AGREEMENT DATED 24.09.2000. THEREFORE, THE CAPITAL GAIN ON ACCOUNT OF TRANSFER OF LAND UNDER THE DEVELOPMENT AGREEMENT ENTERED ON 24.09.2000 REQUIRED TO BE ASSESSED IN THE AY 2001 - 02 BUT NOT ASSESSMENT IN THE YEAR 2005 - 06 , AS THE IN CIDENCE OF TRANSFER OF SITE DID NOT TAKE PLACE IN THE YEAR 2005 - 06. T HE 7 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO LD.CIT(A) OBSERVED THAT ONLY THE CONSIDERATION FOR TRANSFER OF THE LAND WAS RECEIVED IN THE YEAR 2005 - 06 AND IT CANNOT BE A GROUND TO CHARGE THE CAPITAL GAIN IN THE YEAR 2005 - 06 , A S THE INCIDENCE OF TRANSFER DID NOT TAKE PLACE DURING THE YEAR UNDER CONSIDERATION. IN A NUT SHELL, THE LD.CIT(A) HELD THAT THE TRANSFER OF LAND TOOK PLACE IN 2000 - 01 AS PER THE DEVELOPMENT AGREEMENT DATED 24.09.2000, HENCE THE CAPITAL GAIN FOR TRANSFER O F LAND SHOULD BE CHARGED IN THE ASSESSMENT YEAR 2000 - 01 BUT NOT IN THE FY 2005 - 06 RELEVANT TO THE A.Y. 2006 - 07. LD.CIT(A) REJECTED THE CLAIM OF EXEMPTION U/S 54 F OF I.T.ACT OBSERVING THAT THE ASSESSEE OWNS MORE THAN ONE HOUSE, AS ON THE DATE OF TRANSFER OF ROW HOUSES. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS FILED THE APPEAL RAISING THE FOLLOWING GROUNDS : 1) THE ORDER OF THE LD CIT (A) IS ERRONEOUS ON FACTS AND IN LAW. 2) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACTS OF THE CASE AND UPHELD THE ACTION OF THE ASSESSING OFFICER. 3) THE ORDER OF THE LD.CIT( A) IS NOT ACCEPTABLE AS THE CIT(A) , VISAKHAPATNAM, ALLOWED THE FRESH ADDITIONAL GROUNDS FILED BY THE ASSESSEE WHICH WERE NEVER RAISED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS AND THE REVISED STAND OF COMPUTATION OF LTCG WAS ENTIRELY DIFFERENT FROM THE METHOD ADOPTED IN HIS OWN COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME . 8 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO 4) THE LD. CIT(A) ERRED IN CONSIDERING THE SALE CONSIDERATION OF 3 HOUSES AND LEAVING THAT OF ONE HOUSE ON THE BASIS OF PERIOD OF SOLD, FOR COMPUTATION OF CAPITAL GAINS, WHEN ALL THE FOUR HOUSES WERE RECEIVED UNDER ONE DEVELOPMENT AGREEMENT. IN OTHER WORDS, TRANSFER TOOK PLACE IN THE YEAR 2005 - 06 WITHIN THE MEANING OF SECTION 2(47) OF THE I.T.ACT WHEN THE A SSESSEE ACTUALLY RECEIVED (BUILT UP) 4 ROW HOUSES IN LIEU OF HIS LAND. 5) THE LD.CIT(A) IS NOT CORRECT IN ALLOWING THE COST OF CONSTRUCTION FROM THE SALE CONSIDERATION. 6) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 4.1. GROUND NOS. 1, 2 AND 6 AR E GENERAL IN NATURE WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. 5. GROUND NO.3 IS RELATED TO THE ASSESSMENT OF LONG TERM CAPITAL GAINS IN EXCHANGE OF LAND FOR ROW HOUSES . AS DISCUSSED ABOVE, THE LD.CIT(A) HELD THAT THE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT FOR TRANSFER OF LAND ON 24.12.2000 RELEVANT TO THE ASSESSMENT YEAR 2000 - 01. THE ASSESSEE HAS ADMITTED THE LONG TERM CAPITAL GAINS ON SALE OF THREE ROW HOUSES IN THE YEAR 2005 - 06. THE ASSESSING OFFICER HAS TAXED THE MARKET VALUE OF FOUR ROW HOUSES AS SALE CONSIDERATION FOR TRANSFER OF THE LAND AND BROUGHT TO TAX IN THE ASSESSMENT YEAR 2006 - 07. LD.CIT(A) HELD THAT THE ASSESSEE HAS TRANSFERRED 50% LAND BY DEVELOPMENT AGREEMENT DATED 24.12.2000 AND RECEIVED THE CONSTRUCTED AREA FOR TRANSFER OF THE 9 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO LAND, THE INCIDENCE OF TRA NSFER WAS IN THE YEAR 1999 - 2000, HENCE THE LONG TERM CAPITAL GAINS FOR TRANSFER OF LAND WOULD BE ARISING IN THE ASSESSMENT YEAR 2000 - 01, BUT NO T IN THE FINANCIAL YE AR 2005 - 06. SINCE THE TRANSFER OF LAND DID NOT TAKE PLACE IN THE YEAR 2005 - 06 AND ONLY THE CONSIDERATION WAS RECEIVED IN THE YEAR UNDER CONSIDERATION. 6 . APPEARING FOR THE REVENUE, THE LD.DR ARGUED THAT THE DEVELOPMENT AGREEMENT ENTERED BY THE ASSESSEE, DOES NOT CONFER THE COMPLETE RIGHTS TO THE DEVELOPERS M/S PRAJAY ENGINEERING SYNDICATE LTD. THERE ARE LOT OF CONDITIONS, WHICH DOES NOT CONFER THE RIGHT ON LAND TO THE DEVELOPER. LD.DR HAS TAKEN OUR AT TENTION TO CLAUSE N O. 5 OF THE DEVELOPMENT AGREEMENT WH ICH READS AS UNDER : 5. THE OWNERS HAVE AGREED TO EXECUTE SALE DEEDS AS AND WHEN REQUIRED BY THE DEVELOPER IN FAVOUR OF THE DEVELOPER OR ITS NOMINEES AND PURCHASERS. 6 .1. AS PER CLAUSE N O. 5 OF THE DEVELOPMENT AGREEMENT , THE LAND OWNERS HAS TO EXECUTE THE SALE DEEDS AS AND WHEN REQUIRED BY THE DEVELOPER IN FAVOUR OF THE DEVELOPER OR ITS NOMINEES AND PURCHASERS. THE LD.DR FURTHER ARGUED THAT THE JOINT DEVELOPMENT AGREEMENT PER SE DOES NOT GIVE ANY RIGHTS TO THE DEVELOPERS WHICH ATTRACT THE CAPITAL 10 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO GAINS . CAPITAL GAINS OCCURS IN THE YEAR IN WHIC H THE DEVELOPER CONSTRUCT FLATS AND HAND OVER THE SAME TO THE LAND OWNER BUT NOT IN THE YEAR IN WHICH THE DEVELOPMENT AGREEMENT ENTERED IN TO . HENCE, LD.DR ARGUED THAT THE ASSESSING OFFICER RIGHTLY TAXED THE REC EIPT OF FOUR ROW HOUSES AS LONG TERM CAPITAL GAINS FOR TRANSFER OF 1000 SQ.YDS OF SITE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 7 . ON THE OTHER HAND, LD.AR RELIED ON THE ORDER OF THE LD.CIT(A) AND ALSO THE OF THE FOLLOWING DECISIONS : (I) GIRIDHAR G YADA LAM VS. CIT [284 CTR 433(SC)] (II) POTLA NAGESWARA RAO VS. DCIT [365 ITR 249 (AP)] (III) HONBLE ITAT VISAKHAPATNAM BENCH ORDER DT.05.05.2010 IN ITA NO.51/VIZ/2007 IN THE CASE OF P UMA BALA VS.ACIT. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS ACQUIRED THE LAND ON 23.03.1999 AND GIVEN IT FOR DEVELOPMENT TO THE DEVELOPER VIDE AGREEMENT DATED 24.12.2000. FURTHER, AS PER THE DEVELOPMENT AGREEMENT, THE BUILDER IS ALLOWED TO CONSTRUCT THE RESIDENTIAL FLATS, ROW HOUSES AND DELIVER 50% OF THE CONSTRUCTED AREA TO THE OWNER AND THE REMAINING 50% WOULD BE RETAINED BY THE DEVELOPER. THE DEVELOPER IS PERMITTED TO PREPARE THE 11 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO PLAN FOR CONSTRUCTION OF RESIDENTIA L FLATS, ROW HOUSES AND SUBMIT THE SAME TO THE MUNICIPAL AUTHORITIES FOR OBTAINING NECESSARY SANCTIONS. THE ENTIRE DEVELOPMENT COST HAS TO BE BORNE BY THE DEVELOPER AND THE DEVELOPER WAS AUTHORIZED TO TAKE ALL THE PERMISSIONS FROM MUNICIPAL AUTHORITIES FO R WATER, SEWERAGE , ELECTRICITY E TC. THE DEVELOPER WAS ALSO PERMITTED TO MORTGAGE, HYPOTHECATE, CREATE CHARGE IN RESPECT OF 50% SHARE OF THE CONSTRUCTED AREA RELATING THE DEVELOPER . THERE WAS NO CLAUSE FOR REVOCATION OF THE DEVELOPMENT AGREEMENT OR TO CA NCEL THE DEVELOPMENT AGREEMENT EITHER MUTUALLY OR BY THE LAND OWNERS . THEREFORE, FROM THE ABOVE AGREEMENT, IT IS CLEAR THAT THE LAND OWNERS HAVE TRANSFERRED THE LAND FOR EXCHANGE OF ROW HOUSES AND GIVEN THE POSSESSION OF THE LAND TO THE DEVELOPERS. AS RIGH TLY OBSERVED BY THE CIT(A), THE INCIDENCE IF TRANSFER OF LAND TOOK PLACE IN THE ASSESSMENT YEAR 2000 - 01 WHICH IS EVIDENCED BY THE SUBSEQUENT SALE DEEDS. ONLY THE CONSIDERATION FOR TRANSFER OF THE LAND WAS RECEIVED BY THE ASSESSEE IN THE YEAR 2005 - 06. THE QUESTION IS WHETHER THE CAPITAL GAIN SHOULD BE CHARGED IN THE YEAR IN WHICH THE LAND WAS TRANSFERRED WITHIN THE MEANING OF SECTION 2 ( 47 ) OF I.T. ACT OR IN THE YEA R IN WHICH THE CONSIDERATION IS RECEIVED. AS PER THE I.T.ACT IT IS THE YEAR IN WHICH THE 12 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO TRA NSFER TOOK PLACE. THIS VIEW IS UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATUR B HUJ DWARAKA D AS KAPADIA VS. CIT [260 ITR 491] AND HONBLE AP HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS . DY.COMMISSIONER OF INCOME TAX. THE HONBLE A.P. HIGH COURT IN THE CITED JUDGEMENT HELD AS UNDER: 9. THE ELEMENT OF FACTUAL POSSESSION AND AGREEMENT ARE CONTEMPLATED AS TRANSFER WITHIN THE MEANING OF THE AFORESAID SECTION. WHEN THE TRANSFER IS COMPLETE, AUTOMATICALLY, CONSIDERATION MENTIONED IN THE AGRE EMENT FOR SALE HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ASSESSMENT OF INCOME FOR THE ASSESSMENT YEAR WHEN THE AGREEMENT WAS ENTERED INTO AND POSSESSION WAS GIVEN . SIMILARLY, VISAKHAPATNAM TRIBUNAL IN ITA 51/VIZ/2007 IN THE CASE OF P.UMA BALA VS. ACIT FOLLOWING THE ORDER OF THE BOMBAY HIGH COURT IN THE CASE OF CHATURB HUJ DWARAKA DAS KAPADIA [ 260 ITR 491 ] HELD THAT THE YEAR OF CHARGEABILITY OF CAPITAL GAIN IS ASSESSABLE IN THE ASSESSMENT YEAR IN WHICH IT WAS ENTERED INTO THE DEVELOPMENT AGREEMEN T . THE ITAT HELD THAT THE DEVELOPMENT AGREEMENT RESULTS INTO TRANSFER OF CAPITAL ASSET AND THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE SAID CONTRACT WAS EXECUTED. IN THE INSTANT CASE, THE DEVELOPMENT AGREEMENT WAS EXECUTED ON 24.12.2000 AND GIVEN P OSSESSION OF LAND TO THE DEVELOPER AND ALLOWED THE DEVELOPER TO TAKE UP THE CONSTRUCTION AND ENTER INTO ALL THE CONTRACTS FOR OBTAINING THE PERMISSION F OR CIVIL AUTHORITIES . THE DEVELOPER WAS ALSO PERMITTED TO MORTGAGE, TRANSFER, CREATE CHARGE IN 13 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO RESPECT OF THE 50% OF THE CONSTRUCTED AREA RELATING TO THE DEVELOPER. HENCE, THE CAPITAL GAINS FOR TRANSFER OF LAND IN RESPECT OF THE DEVELOPERS SHARE CANNOT BE ASSESSED IN THE ASSESSMENT YEAR 2006 - 07 AND RELATES BACK TO THE ASSESSMENT YEAR 2001 - 02 . HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. THE REVENUE APPEAL ON THIS GROUND IS DISMISSED. 9 . G ROUND NO.4 OF THE REVENUE IS RELATED TO THE SALE CONSIDERATION OF 3 ROW HOU SES. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD RECEIVED THE FOUR ROW HOUSES FOR TRANSFER OF LAND TO THE DEVELOPER IN THE YEAR 2005 - 06, HENCE, THE ASSESSING OFFICER TAXED THE MARKET VALUE OF THE FOUR ROW HOUSES AS LONG TERM CAPITAL GAINS FOR TRANSFER OF LAND IN A.Y.2006 - 07 . WITH REGARD TO THE TRANSFER OF LAND RELATING TO THE DEVELOPER , WE HAVE ALREADY ANSWERED IN GROUND N O.3 THAT THE CAPITAL GAINS ARI SES IN THE ASSESSMENT YEAR IN WHICH THE LAND WAS TRANSFERRED BUT NOT IN THE YEAR IN WHICH THE CONSIDERATION WAS RECEIVED. WITH REGARD TO THE SALE OF THREE ROW HOUSES, THE THREE ROW HOUSES WERE SOLD IN THE FINANCIAL YEAR 2005 - 06 RELEVANT TO THE A.Y.2006 - 07 AND THE FOURTH ROW HOUSE WAS SOLD IN THE YEAR 2006 - 07 RELEVANT TO THE A.Y.2007 - 08. 14 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO THEREFORE, THE CONSIDERATION IN RESPECT OF FOURTH ROW HOU SE SHOULD BE TAXED IN THE A.Y. 2007 - 08 BUT NOT IN THE YEAR UNDER CONSIDERATION. THE THREE ROW HOUSES WERE SOLD IN THE YEAR UNDER CONSIDERATION, HENCE THE SALE VALUE OF THE THREE ROW HOUSES WOULD BE TAXED AS CAPITAL GAIN IN THE YEAR UNDER CONSIDERATION. 9 . 1 THE SALE V ALUE OF THE THREE ROW HOUSES INVOLVE THE LONG TERM CAPITAL GAINS IN RESPECT OF TRANSFER OF LAND AND SHORT TERM CAPITAL GAINS IN RESPECT OF THE ROW HOUSES. THE ASSESSEE HAS SOLD THE LAND WHICH WAS ACQUIRED IN THE YEAR 1999 IN THE YEAR 20 05 - 06. THEREFORE, THE CONSIDERATION RECEIVED FOR TRANSFER OF LAND WOULD BE TAXED AS LONG TERM CAPITAL GAINS AND THE CONSIDERATION RECEIVED FOR SALE OF ROW HOUSES WOULD BE TAXED AS THE SHORT TERM CAPITAL GAINS. LD.CIT(A) ALSO H AS TAKEN THE SAME VIEW. SINCE THERE WAS A DIFFERENCE IN ACTUAL SALE CONSIDERATION THE VALUATION AS PER 50C OF I.T.ACT , T HE FULL VALUE OF CONSIDERATION SHOULD BE ADOPTED AS PER THE STAMP VALUATION AUTHORITY WHICH WAS RS.8 9,51,843/ - . ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND IS DISMISS THE REVENUES APPEAL ON THIS GROUND . 15 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO 10 . GROUND NO.5 IS RELATED TO THE COST OF CONSTRUCTION. THE ASSESSEE HAS ACQUIRED THE LAND IN 1999 AND TRANSFERRED THE LAND BY DEVELOPMENT AGREEMENT IN THE FINANCIAL YEAR 1999 - 2000. IN LIEU OF TRANSFER OF LAND, THE ASSESSEE HAS RECEIVED THE RIGHT IN 50% SHARE OF THE CONSTRUCTED AREA . HOWEVER SUBJECT TO THE PAYMENT OF THE MARKET VALUE THE ASSESSEE HAD RECEIVED THE CONSTRUCTED AREA 12,540 SQ.FT . ( AS PER MOU THE ASSESSEE HAD RECEIVED FOUR ROW HOUSES SUBJECT TO THE UNDER STANDING THAT CONSTRUCTED AREA RECEIVED OVER AND ABOVE WOULD BE PAID BY THE ASSESSEE AS PER THE MARKET VALUE.) THE RIGHT WAS ACQUIRED BY THE ASSESSEE IN THE YEAR 2000 - 01 FOR 50% OF CONSTRUCTED AREA. SINCE THE ASSESSEE HAD PARTED WITH THE 50% OF LAND AND ACQUIRED THE RIGHT ON THE CONSTRUCTED AREA, THE VALUE OF THE RIGHT IN THE CONSTRUCTED AREA AS PER THE COST OF CONSTRUCTION OF THE DEVELOPER OR AS PER THE STAMP VALUATION AUTHORITIES WOULD BE THE COST OF CONSTRUCTION OF THE ASSESSEES SHARE AS PER THE DEVELOPMENT AGREE MENT AND FOR BALANCE CONSTRUCTED AREA THE MARKET VALUE PAID TO THE DEVELOPER . THEREFORE, THE COST OF CONSTRUCTION OF ROW HOUSES RECEIVED IN EXCHANGE OF LAND WOULD BE THE COST OF ACQUISITION OF BUILT UP AREA. THIS VIEW IS SUPPORTED BY THE DECISION OF IT AT,HYD IN DDIT VS G.RAGHURAM 39 SOT 406(2010 ) RELIED UP ON BY THE 16 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO LD.CIT(A). THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO ADOPT THE COST OF CONSTRUCTION TO THE BUILDER FOR THE CONSTRUCTED AREA . FOR THE SAKE OF CLARITY AND CONVENIENCE WE EXTRACT THE RELE VANT PART OF THE CIT(A) ORDER AS UNDER 8.4. I HAVE CONSIDERED THE SUBMISSIONS MADE. AT THE OUTSET IT IS TO BE NOTED, THAT SUCH A CLAIM HAS NOT BEEN MADE BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. HOWEVER, AS THE DETERMINATION OF CAPITAL GAIN INTEGRALLY INVOLVES ITS COMPUTATION, THIS ISSUE IS TAKEN FOR CONSIDERATION THOUGH IT DOES NOT APPEAR TO HAVE BEEN RAISED AT THE ASSESSMENT STAGE. IT HAS TO BE SEEN WHETHER IN THE FACTS AND CIRCUMSTANCES STATED ABOVE THE ASSESSEE WOULD BE ENTITLED TO DEDUCT ION TOWARDS COST OF ACQUISITION OF THE CONSTRUCTED AREA, IF ANY. UNDER THE DEVELOPMENT - AGREEMENT THE ASSESSEE HAS TRANSFERRED CERTAIN PORTION OF LAND IN CONSIDERATION OF CERTAIN PERCENTAGE OF CONSTRUCTED AREA. IT NEEDS TO BE MENTIONED THAT THE ASSESSEE H AD TRANSFERRED 1000 SQ.YD O F LAND FOR DEVELOPMENT AND IN LIEU OF WHICH HE HAS OBTAINED 767 SQ. YARD OF LAND AND 12544 SFT BUILT UP AREA IN THE FORM OF FOUR ROW HOUSES. THE VALUE OF THE CONSTRUCTED AREA ACQUIRED HAS TO BE ASCERTAINED WITH REFERENCE TO THE COST OF CONSTRUCTION TO THE BUILDER. SUCH A VIEW HAS BEEN EXPRESSED BY THE HONTLE ITAT, HYDERABAD IN THE CASE OF DDIT VS. G.RAGHURAM 39 SOT 406 (2010). 8.5 FURTHER IT HAS TO BE NOTED THAT THE SALE OF ROW HOUSES COMPRISE SALE OF LONG TERM ASSET, (LAND) AND SALE OF SHORT TERM ASSET (BUILT UP AREA). THE ARGUMENT THAT THE BUILT UP AREA SHOULD ALSO BE CONSIDERED AS LONG TERM CAPITAL ASSET AS IT WAS ACQUIRED UNDER THE DEVELOPMENT AGREEMENT DTD 24.09.2000 IS UNTENABLE AS WHAT WAS ACQUIRED THEN WAS ONLY A RIGHT TO CERTAIN PERCENTAGE OF CONSTRUCTED AREA. THE CONSTRUCTED AREA CAME TO EXIST AND WAS HELD BY THE ASSESSEE ONLY IN THE YEAR 2005 - 06 AND THEREFORE IT WOULD TAKE THE CHARACTERISTIC OF A SHORT TERM CAPITAL ASSET. THE COST OF ACQUISITION OF LTCG LAND HAS TO BE AS CERTAINED WITH REFERENCE TO THE COST OF ACQUISITION OF THE LAND AND THE COST OF ACQUISITION OF BUILT UP AREA HAS TO BE ASCERTAINED WITH REFERENCE TO THE COST OR CONSTRUCTION TO THE BUILDER. 8.6 ACCORDINGLY THE COST OF THE CONSTRUCTED AREA TO THE DEVELOPER MAY BE TAKEN AS THE COST OF ACQUISITION IN REGARD TO THE ROW HOUSES SOLD. IN THIS REGARD, IT MAY BE NOTED THAT THE ASSESSEE FLIED LETTER FROM THE DEVELOPER STATING THE COST OF CONSTRUCTION T O BE RS.735 PER SFT. HOWEVER, THE AO IS 17 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO DIRECTED TO INQUIRE AND ASCERTAIN THE COST OF CONSTRUCTION TO THE BUILDER FOR THE CONSTRUCTED AREA AND THE SAME MAY BE ADOPTED IN REGARD TO THE SALE OF 9356 SFT. OF BUILT UP AREA COMPRISED IN THE THREE ROW HOUSES SOL D. AS DISCUSSED ABOVE THE PERIOD OF HOLDING OF THE ASSESSEE OF THE CONSTRUCTED AREA IS LESS THAN ONE YEAR, AND CANNOT BE CONSTRUED AS A LONG TERM CAPITAL ASSET, AND AS A RESULT IT WOULD NOT BE ELIGIBLE FOR INDEXATION OF COST. THEREFORE THE PLEA FOR INDEXAT ION IN RESPECT OF COST OF ACQUISITION OF CONSTRUCTED AREA IS UNTENABLE AND REJECTED. AS STATED, THE AO IS DIRECTED TO ASCERTAIN THE COST OF CONSTRUCTION TO THE BUILDER OF THE CONSTRUCTED AREA AND ADOPT THE SAME IN RESPECT OF THE CONSTRUCTED AREA SOLD OF 93 56 SFT TO COMPUTE THE COST OF ACQUISITION OF CONSTRUCTED AREA AND ALLOW THE SAME AS DEDUCTION. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 1 1 . THE ASSESSEE HAD ACQUIRED THE HIS SHARE OF BUILT UP AREA IN EXCHANGE OF TRANSFER OF 50% OF LAND. THE TRANSFER OF LAND ATTRACT CAPITAL GAINS IN THE YEAR OF TRANSFER AS HELD BY US. THE ASSESSEE DID NOT GET THE CONSTRUCTED AREA FREE OF COST. THEREFORE THE CON STRUCTED AREA RECEIVED BY THE ASSESSEE IN EXCHANGE OF LAND REQUIRED TO ASCERTAINED AS PER THE COST INCURRED BY THE BUILDER OR THE STAMP VALUATION AUTHORITIES AND THE SAME REQUIRED TO BE ALLOWED AS DEDUCTION. HENCE, W E HOLD THAT CIT(A) HAS RIGHTLY HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION OF COST OF CONSTRUCTION FROM THE SALE CONSIDERATION. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. IN THE RESULT, APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. 18 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO I.T .A.NO.12/VIZ/2014 1 2 . IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISED 5 GROUNDS IN TOTAL AND ALSO RAISED THE ADDITIONAL GROUND CLAIM ING THE DEDUCTION U/S 54 VIDE PETITION DATED 29.04.2016. 1 3 . GROUND NOS . 1 AND 5 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 1 4 . GROUND NO.2 IS RELATED TO THE ASSESSMENT OF SALE OF THREE ROW HOUSES AS SHORT TERM CAPITAL GAIN INSTEAD OF LONG TERM CAPITAL GAINS . 1 4 .1 . WE HAVE HEARD BOTH TH E PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS ENTER ED INTO DEVELOPMENT AGREEMENT ON 24.12. 2000 AND ACQUIRED THE RIGHT IN THE BUILT UP AREA. HOWEVER THE ACTUAL DELIVERY OF THE ROW HOUSES TO THE ASSESSEE TOOK PLACE IN 2005 - 06 . I.E. THE CONST RUCTION, COMPLETION AND HAND ING OVER OF THE CONSTRUC TED HOUSES W A S IN 2005 - 06 AND THE ASSESSEE HAS SOLD THE ROW HOUSES IMMEDIATELY ON RECEIPT OF THE SAME. T HE ASSESSEE DID NOT RETAIN THE 19 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO ROW HOUSES FOR MORE THAN 36 MONTHS AS REQUIRED U / S 2( 29A ) AND 2( 29 B) TO HOLD THE SAME AS A LONG TERM CAPITAL ASSET . SINCE THE ASSESSEE WAS HOLDING THE ASSET FOR LESS THAN 36 MONTHS, THE CIT(A) RIGHTLY HELD THAT THE TRANSFER OF LAND SHOULD BE ASSESSED AS LONG TERM CAPITAL GAINS AND THE TRANSFER OF ROW HOUSES TO BE ASSESSED AS SHORT TERM CAPITAL GAIN S. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) AND THE SAME IS UPHELD. APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 1 5 . GROUND NO.3 IS RELATED TO THE DEDUCTION U/S 54F. THE ASSESSEE ARGUED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54F SINCE FOUR ROW HOUSES WERE NOT COMPLETED AND SOLD AS UNFINISHED PROPERTY. LD.CIT(A) HELD THAT DEDUCTION U/S 54F IS NOT ALLOWABLE IN THE ASSESSEES CASE, SINCE THE ASSESSEE HAS NOT SATISFIED THE CONDITIONS FOR ALLOWING THE DEDUCTION U /S 54F, I.E. THE ASSESSEE SHOULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE. AS ON THE DATE OF TRANSFER OF ORIGINAL ASSET IN THE YEAR 2005 - 06. IN THE ASSESSEES CASE, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE ALSO OWNS A RESIDENTIAL PROPERTY AT HIG - 1 - B - 102, S EETHAMMADHARA SINCE 1994 AND ALSO FOUR ROW HOUSES WHICH WERE OBTAINED UNDER THE DEVELOPMENT AGREEMENT. AS ON THE DATE OF TRANSFER OF ASSETS, THE 20 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO ASSESSEE OWNS MORE THAN ONE RESIDENTIAL HOUSE. ACCORDINGLY, CIT(A) REJECTED THE DEDUCTION CLAIMED BY THE ASSE SSEE U/S 54F OF THE I.T.ACT. AS PER SECTION 54F, THE DEDUCTION IS ALLOWABLE SUBJECT TO SATISFACTION OF THE FOLLOWING CONDITIONS: (I) THE ASSESSEE SHOULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE AS ON THE DATE OF TRANSFER. IN THE INSTANT CASE, THE ASSESSEE OWNS TWO RESIDENTIAL HOUSES, ONE IS PLOT NO. HIG - 1B - 102, SEETHAMMADHA RA AND THE FOUR ROW HOUSES RECEIVED IN EXCHANGE OF TRANSFER OF LAND. THEREFORE, THE ASSESSEE HAS NOT SATISFIED THE CONDITIONS FOR ALLOWING DEDUCTION U/S 54F. ACCORDINGLY, WE HOLD THAT THE CIT( A) HAS RIGHTLY REJECTED THE CLAIM OF DEDUCTION U/S 54F OF I.T.ACT AND WE UPHOLD THE SAME. THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 1 6 . ADDITIONAL GROUND OF THE ASSESSEE RAISED DURING THE APPEAL HEARIN G FOR GRANTING DEDUCTION U/S 54 OF I.T.ACT. THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS ALLOTTED PORTIONS OF THE HOUSE VIDE DEVELOPMENT AGREEMENT DATED 24. 1 2.2000. HENCE, THIS SITE IS A LONG TERM CAPITAL ASSET. THE APPELLANT DERIVED A RIGHT IN THE ROW HOUSES ON THE DAY ON WH ICH THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. FURTHER, LD.AR 21 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO SUBMITTED THAT THE CONSTRUCTED AREA WAS SOLD ALONG WITH UNDIVIDED SHAR E OF THE LAND. THE SALE OF THE LAND AND THE CONSTRUCTED AREA SHOULD NOT BE CONSIDERED SEPARATELY AS THE SALE WAS DIRECTLY LINKED TO BOTH THE LAND AND THE ROW HOUSE. AS PER SECTION 54 OF I.T.ACT, THE LONG TERM ASSET BEING BUILDINGS OR THE LAND APPURTENANT THERE TO AND BEING RESIDENTIAL HOUSE WOULD BE ELIGIBLE FOR EXEMPTION U/S 54. 16.1. IN THE INSTANT CASE THOUGH THE ASSESSEE HAS TAKEN THE POSSESSION OF THE HOUSE IN 2005 - 06,THE RIGHT IN THE SHARE OF CONSTRUCTED AREA WAS ACQUIRED BY THE ASSESSEE BY THE D EVELOPMENT AGREEMENT DATED 24 . 12 . 200 0 AND HENCE THE LD.AR ARGUED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54. THEREFORE, LD.AR CONTENDED THAT THE ASSESSEE HAS SOLD THE LAND ALONG WITH THE RESIDENTIAL HOUSE AND THE SALE PROCEEDS ARE REINVESTED IN ACQUIRING NEW RESIDENTIAL HOUSE, HENCE ELIGIBLE FOR DEDUCTION U/S 54 AND REQUESTE D THE REL I EF. THE LD A.R ALSO RELIED ON THE DECISION 275 CTR 0329 (KAR) AND (2010) 36 DTR 0385. THEREFORE, LD.AR CONTENDED THAT THE ASSESSEE I S ELIGIBLE FOR EXEMPTION U/S 54 OF I.T.ACT. 22 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO 1 7 . ON THE OTHER HAND, LD.DR ARGUED THAT THE ASSESSEE HAS ACQUIRED THE RIGHT IN SHARE OF CONSTRUCT ED AREA ON THE DATE OF DEVELOPMENT AGREEMENT. THE DEVELOPMENT AGREEMENT PER SE SHOULD NOT BE CONSTRUED AS ACQUIRING THE RESIDENTIAL HOUSES. THE RESIDENTIAL HOUSES WERE CONSTRUCTED AND DELIVERED TO THE ASSESSEE IN 2005 - 06 AND THE ASSESSEE HAS SOLD THE RESIDENTIAL HOUSES IN THE SAME FINANCIAL YEAR WITHOUT HOLDING ASSET FOR 36 MONTHS. SINCE THE ASSESSEE HAS SOLD THE PROPERTY WHICH IS TO BE ASSESS ED AS SHORT TERM CAPITAL GAINS, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 54(1) OF I.T.ACT. THE LD. D R INVITED OUR ATTENTION TO THE SECTION 54(1) OF I.T.ACT, WHEREIN STATUTORY PROVISION PLACES RESTRICTION OF EXEMPTION TO BE ALLOWED ONLY IN RESPECT OF A RESIDENTIAL HOUSE BEING BUILDINGS OR LANDS APPURTENANT THERETO, AND BEING A RESIDENTIAL HOUSE, THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' . LD.D R ARGUED THAT THOUGH THE LAND IS LONG TERM CAPITAL ASSET SINCE THE BUILDING IS A SHORT TERM CAPITAL ASSET, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 54(1) OF I.T.ACT. 1 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS SOLD THE LAND AND BUILDINGS IN THE YEAR 2005 - 06. THE ASSESSEE HAS ACQUIRED THE RIGHT IN BUILDINGS BY 23 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO DEVELOPMENT AGREEMENT DATED 24.12.2000, IN EXCHANGE OF TH E LAND TRANSFERRED TOWARDS HIS SHARE OF CONSTRUCTED AREA. THE LAND WAS TRANSFERRED IN 1999 - 2000 RELEVANT TO THE A.Y.2000 - 2001 AND THE CAPITAL GAINS CONSEQUENT TO TRANSFER OF LAND IS EXIGIBLE FOR THE A.Y.2000 - 01. T HE BUILDER HAS DELIVERED THE CONSTRUCTED A REA IN THE FIN YEAR 2005 - 06 RELEVANT TO THE A.Y2006 - 07.ON TRANSFER OF THE LAND IN THE YEAR 1999 - 2000 THE ASSESSEE HAD NOT RECEIVED ANY CONSIDERATION EXCEPT THE RIGHT IN SHARE OF CONSTRUCTED AREA. 19. ON THE SIMILAR FACTS, THE COORDINATE BENCH OF KOLKATA IN THE CASE OF INCOME TAX OFFICER VS. VIKASH BEHAL ALLOWED EXEMPTION U/S 54EC OF I.T.ACT HOLDING THAT THE AGREEMENT HAS BEEN ENTERED INTO IN THE YEAR 2001 - 02 AND THE CAPITAL GAIN IS ACCRUED IN THE ASSESSMENT YEAR 2001 - 02. FOR READY REFERENCE, WE REPR O DUCE HEREUNDER THE RELEVANT PART OF THE DECISION OF THE COORDINATE BENCH ORDER REPORTED IN (2010) 131 TTJ 0229 AS UNDER : 6.10 FROM THE ABOVE JUDICIAL PRONOUNCEMENTS, IT IS CLEAR THAT THE COMPLETION CERTIFICATE ISSUED BY THE MUNICIPALITY IS A CERTIFICATE INDICATING THAT THE BUILDING IS COMPLETE AND FIT FOR HABITATION. THEREFORE, THE SAID DATE CANNOT BE HELD TO BE THE DATE OF ACQU ISITION OF THE SAID ASSET. THE DATE OF ACQUISITION OF AN ASSET IS THE DATE ON WHICH THE TITLE OF THE SAID ASSET IS PASSED ON TO THE INDIVIDUAL CONCERNED. THE ACTUAL DATE ON WHICH PHYSICAL POSSESSION IS ACQUIRED BY AN INDIVIDUAL IS OF NO CONSEQUENCE IN THE DETERMINATION OF THE DATE OF ACQUISITION OF THE SAID ASSET. THE 24 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO CBDT VIDE THEIR CIRCULAR NO. 471, DT. 15TH OCT., 1986 [[ 1987 ] 59 CTR ( ST ) 19 : [ 1986 ] 162 ITR ( ST ) 41 ] AND CIRCULAR NO. 672, DT. 16TH DEC, 1993 [[ 1993 ] 115 CTR ( ST ) 73 : [ 1994 ] 205 ITR ( ST ) 47A ] HAS MADE THE ISSUE CLEAR AS TO WHAT TIME DOES THE LEGAL OWNERSHIP OF A FLAT GET TRANSFERRED IN FAVOUR OF AN INDIVIDUAL. IN THESE TWO CIRCULARS THE BOARD HAS LAID DOWN THAT THE DATE ON WHICH THE ALLOTEE RECEIVES THE ALLOTMENT LETTER, THE RIGHT OF THE PROPERTY PASSES ON TO THE ALLOTEE. THE FACT THAT THE FULL PAYMENT IS NOT MADE BY THE ALLOTEE DOES NOT AFFECT THE RIGHT OF OWNERSHIP OF THE ALLOTEE. FURTHER, FOLLOWING THE AFORESAID CIRCULARS, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V . JINDAS PA NCHAND GANDHI (SUPRA) HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM LONG - TERM CAPITAL GAIN ON SALE OF THE FLAT. THE FACTS BEFORE THE HON'BLE HIGH COURT WERE THAT THE ASSESSEE BECAME A MEMBER IN A CO - OPERATIVE SOCIETY. HE WAS ALLOTTED A FLAT IN THE BUILDING OF THE SOCIETY BY RESOLUTION DT. 4TH NOV., 1980. ON THIS DATE, THE PROPERTY WAS UNDER CONSTRUCTION AND CAME TO BE COMPLETED ON 12TH NOV., 1983. PHYSICAL POSSESSION WAS HANDED OVER TO THE ASSESSEE ON THAT DATE ITSELF. ON 30TH APRIL, 1984, THE ASSESSEE SOLD THE FLAT FOR A CONSIDERATION OF RS 3.75 LAKHS AND WORKED OUT THE CAPITAL GAINS AT RS. 1,59,295. THE MATTER ULTIMATELY CAME TO THE HON'BLE HIGH COURT AND THE HIGH COURT CONCLUDED THE MATTER AS UNDER : 'THAT THE ASSESSEE IN THE PRESENT CASE WAS ALLOTTED A SH ARE BY THE COOPERATIVE HOUSING SOCIETY ON 4TH NOV., 1980, AND THE SALE OF THE SAME TOOK PLACE ON 30TH APRIL, 1984, I.E. , AFTER A PERIOD OF 36 MONTHS. THE TRIBUNAL WAS THEREFORE JUSTIFIED IN HOLDING THAT THE CAPITAL GAINS ARISING WERE LONG - TERM CAPITAL GAIN S AND THE ASSESSEE WAS ENTITLED TO DEDUCTION FROM SUCH GAINS AS PER LAW.' 2 0 . ON SIMILAR FACTS AND CIRCUMSTANCES, HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF C.N.ANANTHARAM VS. ACIT [275 CTR 0329] HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 54(1) OF I.T.ACT. FOR READY REFERENCE, WE REPRODUCE HEREUNDER THE RELEVANT PART OF THE HONBLE HIGH COURT ORDER AS UNDER IN PARA 11 AND 12. 11. WHEN THE LEGISLATURE HAS USED THE WORD 'OR' WHICH MEANS THE WORD BUILDINGS OR LANDS APPUR TENANT THERETO SHOULD BE UNDERSTOOD DISJUNCTIVELY HAVING REGARD TO THE CONTEXT IN WHICH ITS USED IT CANNOT BE READ AS 'AND'. IF IT'S READ AS 'AND', IT AMOUNTS TO COURT REWRITING THE SECTION BY SUBSTITUTING THE WORD 'AND' IN PLACE OF THE WORD 'OR' WHICH IS NOT 25 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO PERMISSIBLE IN LAW. A PERSON MAY BE RESIDING IN A RESIDENTIAL HOUSE AND THE LAND PERTINENT THERETO. THAT HOUSE HE MAY BE USING IT FOR HIS BENEFIT. AS LONG AS THE SAID LAND IS NOT USED FOR ANY COMMERCIAL OR NON - RESIDENTIAL PURPOSE, THE USER OF THE LAND BY THE RESIDENT IS FOR RESIDENTIAL PURPOSE ONLY. IF SUCH A PERSON CHOOSES TO SELL ONLY THE LAND WHICH HE WAS USING FOR RESIDENTIAL PURPOSE, THE LEGISLATURE HAS CONFERRED THE BENEFIT IN RESPECT OF / TO THE CAPITAL GAINS ARISING THERE FROM UNDER SECTION 54(1 ) OF THE ACT. IF A LAND APPURTENANT TO A RESIDENTIAL HOUSE IS ENTITLED TO THE SAID BENEFIT, WE FIND IT DIFFICULT TO ACCEPT THAT THE LAND ON WHICH THE RESIDENTIAL BUILDING IS CONSTRUCTED IS NOT ENTITLED TO THE SAID BENEFIT. 12 . WHEN A PROPERTY, RESIDENTIAL HOUSE IS SOLD, THE SALE CONSIDERATION INCLUDES THE VALUE OF THE LAND AND THE VALUE OF THE CONSTRUCTION. THOUGH THERE IS NO TWO SALE TRANSACTIONS INVOLVED FOR THE PURPOSE OF THE ACT, IN ORDER TO CALCULATE THE CAPITAL GAINS AS RIGHTLY DONE BY THE ASSESSING AUTHORITY, HE HAS TREATED THE SALE OF LAND ON WHICH THE RESIDENTIAL HOUSE IS CONSTRUCTED AS A LONG TERM CAPITAL GAIN AND HE HAS TREATED THE BUILDING AS SHORT TERM CAPITAL GAIN. IF, FOR LEVYING TAX UNDER THE ACT, SUCH A DISTINCTION COULD BE MADE, WE FAIL TO UNDERSTAND WHY THAT DISTINCTION SHOULD NOT BE KEPT IN MIND IN EXTENDING THE BENEFIT UNDER SECTION 54(1) OF THE ACT. IF THE LAND ON WHICH THE BUILDING IS CONSTRUCTED IS A LONG TERM CAPITAL GAIN AND THE AMOUNT RECEIVED TOWARDS THE SALE OF SUCH LAND WHEN IT IS ASSESSED AS LONG TERM CAPITAL GAIN AND TAXED. IN VIEW OF SECTION 54(1) IF THAT CONSIDERATION FROM THE SALE OF THE LAND IS UTILIZED IN ACQUIRING A RESIDENTIAL HOUSE, THE BENEFIT FROM EXEMPTION IS TO BE EXTENDED. OTHERWISE, THE SECTION LOCKS ABSURD. THE LAND WHICH IS ADJOINING THE RESIDENTIAL HOUSE IS ENTITLED TO BENEFIT UNDER SECTION 54(1) OF THE ACT BUT THE LAND ON WHICH THE RESIDENTIAL HOUSE WOULD NOT BE ENTITLED TO SUCH BENEFIT, WE CANNOT IMPUTE ANY SUCH INTENTION TO THE LEGISLATURE. 2 1 . IN THE INS TANT CASE, THE LAND IS THE LONG TERM CAPITAL ASSET AND THE RESIDENTIAL HOUSE IS A SHORT TERM CAPITAL ASSET. THE RIGHT IN CONSTRUCTED AREA WAS ACQUIRED BY THE ASSESSEE IN THE YEAR 1999 - 2000 BY TRANSFER OF LAND. THOUGH FOR THE PURPOSE OF TAXING THE CAPITAL G AINS, THE TAXING AUTHORITY IS RIGHT IN HIS APPROACH FOR THE PURPOSE OF TAXING CAPITAL GAINS OF RESIDENTIAL HOUSE AS SHORT TERM CAPITAL GAINS AND THE LAND AS LONG 26 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO TERM CAPI TAL GAINS, WHEN ASSESSEE HAS SO LD BOTH IN A SINGLE TRANSACTION, T HE ASSESSEE IS ENT ITLED FOR DEDUCTION U/S 54(1). THIS VIEW IS SUPPORTED BY THE DECISION OF HONBLE HIGH COURT OF KARNATAKA CITED SUPRA AND THE DECISION OF COORDINATE BENCH OF ITAT,KOLKATA. THEREFORE, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 54 AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION . THE APPEAL OF THE ASSESSEE IS ALLOWED ON THIS GROUND. 22 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND OCT 20 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 06 . 10 .2017 L. RAMA, SPS 27 ITA NO S . 12 /VIZ/201 4 & 13/VIZ/2014 P.RAGHUNADHA RAO / COPY OF THE ORDER FORWARDED TO: - 1. / THE A SSESSEE P.RAGHUNADHA RAO, C/O SRI S.RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, H.NO.3 - 6 - 643, ST.NO.9, HIMAYATNAGAR, HYDERABAD - 500 029 2 . / THE REVENUE - THE INCOME TAX OFFICER, WARD - 3(1), VISAKHAPATNAM 3 . / THE CIT - 1, VISAKHAPATNAM 4 . THE COMMISSIONER OF INCOME - TAX (APPEALS) 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM