ASST CIT CIR 19(2), MUMBAI V. MARIE J FARIA, MUMBAI

ITA 2877/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88690 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P SR
• Keywords: Deduction for capital gain; Capital asset; Gift; Cost of acquisition; Fair market value
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI B.R. BASKARAN , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO . 2877/M/2011 ASSESSMENT YEAR: 2007 - 08 ACIT 19(2), ROOM NO.315, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBA UG, PAREL, MUMBAI - 4000 1 2 VS. SMT. MARIE JOSEPH FARIA, PLOT NO.12 - B, CELINE HOUSE, S.C. CHATTERJEE MARG, SANTACRUZ (W), MUMBAI 400 054 PAN: AAHPF 5878L (APPELLANT) (RESPONDENT) ASSESSEE BY : SH RI MITESH MEHTA, C.A. REVENUE BY : SHRI ASGHAR ZAIN V.P., SR. A.R. DATE OF HEARING : 15.01 .201 5 DATE OF PRONOUNCEMENT : 31.03. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORD ER DATED 28.01.2011 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2007 - 08 . 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: ON THE FAC T S AND I N THE CIRCUMSTANCES OF T HE CASE AND IN L A W, T HE LEA RN ED C IT(A ) H AS ERRED IN DIRECT I NG TO ALLOW THE EXEMPTION U/S 54 OF THE I . T. ACT . CLA I MED BY T H E ASSESSE E FOR TWO FLATS , JUST BECAUSE OF THERE ARE NO OTHER FLATS ON THE FLOOR WHERE THE ASSESSEE R ES I DES AND BOTH THE FLATS ARE USED BY HER AND TH ERE I S NO NEED T O ST RU CT UR AL LY A L TE R THE FL A T , IGNORING THE FACTS THAT : - A ) THE REP L Y F ILED B Y THE CO - OPERAT IV E HSG . SOC . , THERE I S NO I NTER N A L CON N E C T IVITY BETWEEN THE TWO FLATS EVEN THE REPORT SUBMITTED BY I NSPECTOR THAT THE F L AT S NO . 601 AND 602 ARE NO T INTERCONNECTED. IT A NO.2877/M/2011 SMT. MARIE JOSEPH FARIA 2 B) THE EXEMPTION U/S. 54 OF THE I . T. ACT . IN RESPECT OF CAPITAL GAIN ARISING ON SALE OF PROPERTY USED FOR RESIDENCE IS ONLY AVAILABLE TOWARDS INVESTMENT IN NEW HOUSE PROPERTY IN THE TIME LIMIT PRESCRIBED UNDER THE ACT . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED CIT(A) HAS ERRED IN DIRECT I NG TO TAKE THE FULL VALUE CONSIDERATION AS ON 01 - 04 - 198 1 TOWARDS THE COST OF ACQUISIT I ON WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS THE OWNER OF PROPERTY AS O N 26 - 04 - 1994 . 3. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED CIT ( A ) HAS FAILED TO APPRECIATE THE FACT THAT THE CLAUSE ( B) OF SECTION 2 ( 42A ) IS ONLY FOR DETERMIN I NG THE PERIOD HE L D BY THE ASSESSEE FOR THE PURPOSE OF TREATING THE ASSET AS A LONG TERM CAP I TAL ASSET AND EXPLANATION (I I I ) TO SECTION 48 CLEARLY STATES THAT THE COST INFLAT I ON INDEX SHAL L BE F ROM THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE . 4. THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MANJULA J. SHAH ITA NO.7315/M/2007 DATED 16.06.2009 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. A PERUSAL OF THE ABOVE GROUNDS OF APPEAL REVEALS THAT THE REVENUE HAS AGITATED THE ACTION OF THE LD. CIT(A) FOR ALLOWING CLAIM OF EXEMPTION UNDER SECTION 54F IN RESPECT OF TWO FLATS PURC HASED BY THE ASSESSEE AND FURTHER IN ALLOWING INDEXATION TAKING THE COST OF ACQUISITION OF THE PROPERTY AS PER THE FAIR MARKET VALUE OF THE SAID PROPERTY AS ON 01.04.81. 4. RIVAL CONTENTIONS HAVE BEEN HEARD. BRIEF FACTS RELATING TO THE ISSUE UNDER CONS IDERATION ARE THAT THE ASSESSEE AN OLD LADY, DURING THE YEAR, HAS CLAIMED EXEMPTION OF LONG TERM CAPITAL GAIN AMOUNTING TO RS. 3,47,94,461/ - ON ACCOUNT OF SALE OF HER RIGHTS IN THE INHERITED HOUSE. THE ENTIRE CAPITAL GAIN ON SALE OF INHERITED HOUSE WAS CLA IMED AS EXEMPT AS THE ASSESSEE HAD INVESTED ENTIRE CONSIDERATION WITHIN THE TIME LIMIT SPECIFIED UNDER SECTION 54 OF THE INCOME TAX ACT FOR PURCHASING TWO ADJACENT FLATS ON THE SAME FLOOR CONVERTING IT A NO.2877/M/2011 SMT. MARIE JOSEPH FARIA 3 THE SAME INTO A SINGLE RESIDENTIAL UNIT. THE ASSESSING O FFICER (HEREINAFTER REFERRED TO AS THE AO) DISALLOWED THE EXEMPTION UNDER SECTION 54F IN RELATION TO ONE FLAT ON THE GROUND THAT THE EXEMPTION UNDER SECTION 54F IS AVAILABLE ONLY IN RESPECT OF PURCHASE OF ONE FLAT AND NOT FOR TWO FLATS. 5. THE LD. CIT(A ), HOWEVER, ALLOWED THE CLAIM OF EXEMPTION CLAIMED BY THE ASSESSEE UNDER SECTION 54F OBSERVING AS UNDER: 25. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, THE SUBMISSIONS MADE BY THE APPELLANT AND THE FACTS OF THE CASE. I DO CONCUR WITH THE VIEW OF THE AO THAT EXEMPTION IS AVAILABLE ONLY IN RESPECT OF A RESIDENTIAL HOUSE BUT IN VIEW OF THE CASE OF SUSHILA M. JHAVENI REPORTED IN (2007) 107 LTD 321 MENTIONED SUPRA, THE APPELLANT BECOMES ENTITLED FOR EXEMPTION IN RESPECT OF TWO RESIDENTIAL HOUSES IF TH EY ARE CONTIGUOUS HAVING COMMON PAS SAGE, COMMON KITCHEN ETC. THE ES SENTIAL CONDITION IS THAT WHERE MORE THAN ONE UNIT IS PURCHASED WHICH ARE ADJACENT TO EACH OTHER AND ARE CONVERTED INTO ONE HOUSE FOR THE PURPOSE OF RESIDENCE THEN IT WOULD BE A CASE OF INV ESTMENT IN ONE RESIDENTIAL HOUSE AND CONSEQUENTLY THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION. IN THE CASE OF THE APPELLANT TWO UNITS ARE ADJACENT TO EACH OTHER HAVING COMMON KITCHEN AND THE UNITS ARE CONVERTED INTO ONE HOUSE FOR THE PURPOSE OF RESIDENCE . IN FACT ON THE ENTIRE SIXTH FLOOR, THERE ARE ONLY TWO FLATS BELONGING TO THE A P PELLANT AND NO OTHER FLAT IS THERE. SO MUCH SO THE ENTIRE FLAT BELONGS TO THE AP P ELLANT . THE A.R. OF THE APPELLANT HAS STATED THAT THERE WAS NO REQUIREMENT TO STRUCTURALLY CHA NGE THE FLATS FOR THE PURPOSE OF CONVERTING THEM INTO ONE H OUSE. IT IS FURTHER STATED THAT IT IS UPTO THE APPELLANT TO DECIDE HOW AND IN W H AT MANNER BOTH THE FLATS ARE TO BE USED AS ONE UNIT OF RESIDENCE . WHETHER THE FLATS ARE REQUIRED TO BE STRUCTURALLY C HANGED OR TO TREAT THEM AS ONE HOUSE WITHOUT MAKING ANY STRUCTURAL CHANGE IS UPTO THE APPE L LANT AS THE APPELLANT IS THE BEST JUDGE OF HER SITUATION. IN THIS CASE SPECIALLY, SINCE THE ENTIRE FLOOR BELONGS TO THE APPELLANT, THERE IS NO NEED FOR THE SAME AND AS LONG AS IT IS CONVENIENT TO THE APPELLANT TO USE BOTH THE FLATS AS ONE RESIDENTIAL HOUSE FOR HERSELF AND HER FAMILY, THERE IS NO REASON TO THINK IT OTHER W ISE. THE APPELLANT HAS ALSO FILED AN AFFIDAVIT TO THIS EFFECT THAT BOTH THE FLATS ARE USED AS ONE C OMMON RESIDENCE BY THE FAMILY MEMBERS. THE SAID AFF I D A VIT WAS FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE A.R. OF THE APPELLANT ALSO RELIED UPON THE RECENT DECISION OF HON. HIGH COURT OF KARNATAKA IN THE CASE OF COMM ISSIONER OF INCOME TAX .& ANR V/S. SMT. K.G. RUKMINIAMMA IN (2010)48 DTR 377. IT A NO.2877/M/2011 SMT. MARIE JOSEPH FARIA 4 26. THE LD. AR FURTHER RELIED UPON THE DECISION OF THE COMMISSIONER OF INCOME TAX V / S D. ANAND BASSAPPA REPORTED IN 309 ITR 329. ON FACTS, IT IS SHOWN BY THE APPELLANT THAT THE A PARTMENTS ARE SITUATED SIDE BY SIDE. THE BUILDER HAS ALSO STATED THAT HE HAS EFFE C TED MODIFICATION OF THE FLATS TO MAKE IT AS ONE UNIT BY OPENING THE DOOR IN BETWEEN TWO APARTMENTS. THE FACT THAT AT THE TIME WHEN THE INSPECTOR INSPECTED THE PREMISES, THE F LATS WERE OCCUPIED BY TWO DIFFERENT TENANTS IS NOT THE GROUND TO HOLD THAT THE APARTMENT IS NOT ONE RESIDENTIAL UNIT. THE FACT THAT THE ASSESSEE COULD HAVE PURCHASED BOTH THE FLATS IN ONE SINGLE SALE DEED OR COU L D HAVE NARRATED THE PURCHASE OF TWO PREMISES AS ONE UNIT IN THE SALE DEED IS NOT THE GROUND TO HOLD THAT THE ASSESSEE HAD NO INTENTION TO PURCHASE THE TWO FLATS AS ONE UNIT THUS, IN MY CONSIDERED VIEW DEDUCTION IN RESPECT OF BOTH THESE FLATS IS ALLOWABLE TO THE APPELLANT IN ACCORDANCE WITH THE PROVI SIONS OF SEC. 54. 27. IT IS HELD BY MUMBAI BENCH O F ITAT IN THE CASE OF MANJULA J SHAH RE PORTED IN 126 TTJ 145 (2009) (MU M) (SB) THAT 'IF ALL THE RELEVANT PROVISIONS ARE READ TOGETHER, THE POSITION WHICH EMERGES IS THAT THERE IS NO CAPITAL GAIN CHARGEABLE TO TAX AS A RESULT OF TRANSFER OF A CAPITAL ASSET UNDER GIFT SINCE THE TRANSACTION INVOLVING A GIFT OF CAPITAL ASSET IS NOT REGARDED AS TRANSFER FOR THE PURPOSE OF SEC. 45. HOWEVER, WHERE SUCH CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSESSEE UNDER GIFT IS SUBSEQUENTLY TRANSFERRED AS ENVISAGED IN SEC. 45, THE CAPITAL GAIN ARISING FROM SUCH TRANSFER IS MADE CHARGEABLE TO TAX AND HAVING REGARD TO THE SPECIFIC PROVISIONS CONTAINED IN THE STATUTE, THE COST AND DATE OF ACQUISITION OF THE PREVIOUS OWNER ARE ADO PTED AS COST AND DATE OF ACQUISITION OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF INCOME FROM SUCH CAPITAL GAINS. THE ENTIRE CAPITAL GAIN INCLUDING THE CAPITAL GAIN WHICH WOULD HAVE BEEN CHARGEABLE AS A RESULT OF TRANSFER OF A CAPITAL ASSET BY THE PRE VIOUS OWNER TO THE ASSESSEE AS A RESULT OF GIFT BUT FOR THE PROVISIONS OF SEC. 47 THUS IS MADE CHARGEABLE TO TAX AT THE SECOND STAGE WHEN THE CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSESSEE UNDER GIFT IS TRANSFERRED BY HIM. THIS IS THE SCHEME OF THE AC T AS LAID OUT IN THE RELEV ANT PROVISIONS WHICH TREAT THE CO ST AND DATE OF ACQUISITION OF THE PREVIOUS OWNER AS THE COST AND DATE OF ACQUISITION OF THE ASSESSEE . 28. IT WAS ALSO HELD BY CHANDIGARH SMC BENCH IN THE CASE OF MRS PUSHPA SOFAT REPORTED IN (2004 ) 89 TTJ 499 THAT INDEXED COST OF ACQUISITION OF THE PROPERTY INHERITED BY ASSESSEE FRO M HER FATHER WHICH WAS ACQUIRED BY HIM MUCH BEFORE 1981 HAS TO BE WORKED OUT BY TAKING THE COST AS ON 1 ST APRIL, 1981 AS 100 AND APPLYING THE COST OF INFLATION INDEX OF THE ACCOUNTING YEAR WHEN THE PROPERTY WAS SOLD. 28. CONSIDERING ALL THE ABOVE F A CTORS AND AFTER GOING THROUGH THE DECISION IN THE CASE OF MANJULA J SHAH, AM OF THE CONSIDERED VIEW THAT THE CASE OF THE APPELLANT IS COVERED BY THE CASE OF THE JURISDICTION AL ITAT OF MANJULA J. SHAH. I ALSO FIND THAT IN THE CASE OF MANJULA J SHAH, THE CASE OF KISHORE IT A NO.2877/M/2011 SMT. MARIE JOSEPH FARIA 5 KANUNGO WHICH IS IN DEPARTMENT'S FAVOUR HAS BEEN OVERRULED. IN THE CASE OF MANJULA J SHAH, THE HONBLE MEMBERS WHILE OVERRULING THE DECISION OF DIVISION BENCH OF MUMBAI TRIBUNAL IN THE CASE OF KISHORE KANUNGO 107 LTD 437 HAVE HELD AS UNDER: - 'WE, THEREFORE, DO NOT AGREE WITH THE VIEW TAKEN OF THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF KIHORE KANUNGO (SUPRA) WHILE DECIDING A SIMILAR ISSUE AGAINST THE AS SESS E E BY ADOPTING SUCH LITER INTERPRETATION OF EXPLANATION (III) TO SECTION 48. 29. IT IS SEEN THAT THE ASSESSING OFFICER HAS FAILED TO INTERPRET THE LEGAL POSITION VIS - - VIS THE FACTS OF THE ASSESSEE. THE ASSESSEE IS INDEED ENTITLED TO EXEMPTION U/S. 54 IN RESPECT OF BOTH THE FLATS; THOUGH PURCHASED ON TWO DIFFERENT DATES SINCE IT IS USED AS A SINGLE RESIDENTIAL UNIT. THE ASSESSEE HAS INHERITED THE PROPERTY WHICH WAS PURCHASED BEFORE 1 ST APRIL, 1981 AND IS ALSO ENTITLED TO REPLACE THE FAIR MARKET VALUE A S ON 1 APRIL, 1981 AS THE COST OF ACQUISITION. THE ASSESSEE IS ALSO ENTITLED TO COST INFLATION INDEX AND THEREFORE THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE LONG TERM CAPITAL GAIN EXEMPTION U/S. 54, ALLOW THE INVESTMENT IN TWO FLATS, TAKE THE FA IR MARKET VALUE AS ON 1 ST APRIL , 1981 AS THE COST OF ACQUISITION, AND ALSO GIVE THE BENEFIT OF COST INDEXATION TO THE ASSESSEE. THE GROUNDS OF APPEAL ARE ALLOWED. IN THE RESULT, APPEAL OF THE APPELLANT IS ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL CONTENT IONS OF BOTH THE PARTIES. WE FIND THAT THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAD PURCHASED THE ENTIRE FLOOR OF THE BUILDING THERE BEING ONLY 2 FLATS ON ONE FLOOR. SINCE THERE WAS NO OTHER FLAT ON THE SAID FLOOR AND THE ENTIRE F LOOR BELONGED TO THE ASSESSEE, HENCE THERE WAS NO REQUIREMENT TO THE ASSESSEE TO MAKE ANY STRUCTURAL CHANGE IN THE FLATS FOR CONVERTING THEM INTO ONE HOUSE. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENT IN TWO ADJACENT FLATS ON THE SAME FL OOR WHICH WERE USED AS A SINGLE RESIDENTIAL HOUSE WITH COMMON KITCHEN. AFTER FOLLOWING THE DECISION RENDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SUSHILA M. JHAVERI (2007) ITD 327 (MUM) THE LD. CIT(A) HAS ALLOWED THE EXEMPTION U/S 54F TO THE ASSESSEE IN RELATION TO THE TWO FLATS PURCHASED ON THE SAME FLOOR AND BEING USED BY THE ASSESSEE AS A SINGLE RESIDENTIAL UNIT. THE DETAILED FINDING RECORDED BY LD. CIT(A) HAS NOT IT A NO.2877/M/2011 SMT. MARIE JOSEPH FARIA 6 BEEN CONTROVERTED BY THE REVENUE BY BRINGING ANY POSITIVE MATERIAL ON R ECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) FOR ALLOWING EXEMPTION U/S 54F IN RESPECT OF TWO ADJOINING FLATS SITUATED AT WING - A AND COMBINED TO MAKE A SINGLE UNIT WITH COMMON ENTRANCE AND KITCHEN. 7. ADMITTEDLY, THE ASSESSEE HAS IN HERITED THE PROPERTY WHICH WAS PURCHASED BY THE ORIGINAL OWNER BEFORE 01.04 .81. THEREFORE, THE LD. CIT(A), BY FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF MANJULA J SHAH (2009) ( 126 TTJ 145) , HELD THAT THE ASSESSEE IS ENTITLED TO THE INDEXATION BY TAKING THE COST OF ACQUISITION OF THE PROPERTY AS PER FAIR MARKET VALUE OF THE SAID PROPERTY AS ON 01.04.81. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS RESPECT ALSO. THERE IS NO MERIT IN THE APPEA L OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 31.03. 201 5 . SD/ - SD/ - ( B.R. BASKARAN ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI, DATED: 31.03.2015 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.