Asst.C.I.T., Mangalore V. Mr. Sundara Derebail Poojary, Mangalore

ITA 625/BANG/2015

• Counselvise Citation: 62521114 RSA 2015
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 17-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWAL JT
• Assessee Lawyers: V SRINIVASAN
• Keywords: Cost of acquisition; Fair market value; Competent authority
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.625/BANG/2015 ASSESSMENT YEAR : 2011-12 THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, MANGALORE. VS. SHRI SUNDARA DEREBAIL POOJARY, 802, SANJAY APARTMENTS, SHIVABAGH, MANGALORE 575 002. PAN : BTLPP 6244A APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWAL, JT. CIT(DR) RESPONDENT BY : SHRI V .SRINIVASAN, CA DATE OF HEARING : 03.08.2015 DATE OF PRONOUNCEMENT : 07.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 12.2.2015 OF THE CIT(APPEALS)-XII, BENGALURU RELATING TO ASSESSM ENT YEAR 2011-12. ITA NO.625/BANG/2015 PAGE 2 OF 8 2. THE EFFECTIVE GROUNDS OF APPEAL RAISED BY THE RE VENUE READ AS FOLLOWS:- 2. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE DE CISION OF THE ASSESSING OFFICER OF RESTRICTING THE EXEMPTION CLAIMED U/S 54 TO THE AMOUNT INVESTED @ RS.3000/- PER SQ.FT. IN FL AT NO.301 (1325SQ.FT.). 3. ALTHOUGH THE LEARNED CIT(A) HAS RELIED ON THE D ECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS . ANANDA BASAPPA(2009) 309 ITR 329(KAR), HE HAS ERRED IN HOL DING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 54 IN RES PECT OF FLAT NO.301 AND 302 ON THE BASIS OF MERE PROXIMITY ALTHO UGH THE TWO FLATS WERE SOLD AS SEPARATE UNITS AND ARE DIVIDED B Y A STAIR CASE WHEREAS IN THE AFORE CITED CASE, THE HONBLE HIGH C OURT OF KARNATAKA WHILE ALLOWING EXEMPTION IN RESPECT OF TW O ADJACENT FLATS HAD OBSERVED THAT THE APARTMENTS ARE SITUATED SIDE BY SIDE AND THE BUILDER HAS EFFECTED MODIFICATION OF THE FL ATS TO MAKE IT AS ONE UNIT BY OPENING THE DOOR BETWEEN TWO APARTMENTS . 4. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TH E TERM A RESIDENTIAL HOUSE COULD MEAN MORE THAN ONE RESIDEN TIAL HOUSE WHEREAS, SUCH A CONCEPT WOULD DEFEAT THE PURPOSE OF SEC.48 OF THE INCOME TAX ACT OF BRINGING LONG TERM CAPITAL GAIN F ROM SALE OF RESIDENTIAL HOUSES TO TAX BECAUSE ASSESSEES WOULD T HEN BE ABLE TO CLAIM THE ENTIRE CAPITAL GAIN AS EXEMPT U/S 54 BY I NVESTING THE ENTIRE AMOUNT IN MULTIPLE PROXIMAL HOUSES IN APARTM ENT COMPLEXES. 5. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TH E TERM A RESIDENTIAL HOUSE COULD MEAN MORE THAN ONE RESIDEN TIAL HOUSE WHEREAS IN CLAUSES (I) AND (II) OF SEC.54(1), THE U SE OF THE DEFINITE ARTICLE THE WITH THE WORDS RESIDENTIAL HOUSE AND NEW ASSET IN SINGULAR MAKES IT EXPLICITLY CLEAR THAT THE LEGISLA TIVE INTENT OF SECTION 54 IS TO ALLOW EXEMPTION TO THE EXTENT OF T HE AMOUNT INVESTED IN ONLY ONE RESIDENTIAL HOUSE AND NOT IN A NY NUMBER OF HOUSES OR OTHERWISE, THE WORDS THE RESIDENTIAL HOUSE AND THE NEW ASSET(S) INSTEAD OF THE THE RESIDENTIAL HOUSE AND THE NEW ASSET WOULD HAVE BEEN USED. ITA NO.625/BANG/2015 PAGE 3 OF 8 3. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL. HE OWNED A PROPERTY IN RESPECT OF WHICH HE ENTERED INT O A JOINT DEVELOPMENT AGREEMENT (JDA) WITH M/S. SRI RAJ KAMAL DEVELOPERS ON 27.12.2010. AS PER TERMS OF THE JDA, ASSESSEE WAS ENTITLED TO GET 33% OF THE BUILT-UP AREA AS CONSIDERATION FOR TRANSFERRING 67% OF THE RIGHT OVER THE LAND, OVER WHICH THE DEVELOPER HAS TO DEVELOP AND CONSTRUCT FLATS IN ACCORDANCE WITH THE SCHEME SANCTIONED BY THE COMPETENT AUTHORITY. AS A ND BY WAY OF ASSESSEES SHARE, THE ASSESSEE RECEIVED BUILT-UP AR EA OF 3300 SQ.FT. WHICH WAS RECEIVED BY HIM AS FOLLOWS:- SL.NO. FLAT NO. AREA IN SQ.FT. 1. 301 1325 2. 302 1175 3. 102 800 OUT OF TOTAL AREA OF 1175 SQ.FT. OF THE FLAT THE ASSESSEE VALUED THE BUILT-UP AREA AT 3000/- SQ. FT AND CONSIDERED A SUM OF 99,00,000/- AS FULL VALUE OF CONSIDERATION R ECEIVED ON TRANSFER AND COMPUTED CAPITAL GAINS FROM THE TRANSFER OF SAID PR OPERTY TO THE BUILDER. OUT OF THE ABOVE, AFTER DEDUCTING THE INDEXED COST, THE ASSESSEE DETERMINED TOTAL LONG TERM CAPITAL GAINS AT 94,01,233/- AND CL AIMED THE ENTIRE GAINS AS DEDUCTIBLE U/S 54 OF THE INCOME TAX ACT, 1961 BECAU SE HE GOT THE FULL VALUE OF CONSIDERATION IN THE FORM OF FLATS. 4. THE AO, ON A READING OF THE PROVISIONS OF SECTIO N 54 OF THE ACT, WAS OF THE FOLLOWING VIEW:- ITA NO.625/BANG/2015 PAGE 4 OF 8 AS COULD BE SEEN FROM THE PLAIN READING OF THE SAI D SECTION THAT THE ASSESSEE WILL BECOME ELIGIBLE WHEN THE CAPITAL GAINS, ARISEN OUT OF SALE OF BUILDINGS OR LAND APPURTENANT THERET O AND BEING A RESIDENTIAL HOUSE, INVESTED IN A RESIDENTIAL HOUSE. IN THE INSTANT CASE THE ASSESSEE HAS, IN LIEU OF LAND AND BUILDING HANDED OVER TO THE BUILDERS, RECEIVED TWO FLATS, I.E RESIDENTIAL U NITS AND A PART IN ANOTHER FLAT IN DIFFERENT FLOOR. ACCORDING TO THE AO, U/S.54 OF THE ACT EXEMPTION IS AVAILABLE ONLY TO A RESIDENTIAL HOUSE, WHEREAS THE ASSESSEE GOT TWO FL ATS AND THEREFORE THE EXEMPTION HAS TO BE RESTRICTED TO ONLY ONE FLAT. 5. THE ASSESSEE RELIED ON THE DECISION OF THE HONB LE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. SMT. K.G. RUKMINIAMMA, 331 ITR 211 (KARN) , WHEREIN THE HONBLE HIGH COURT TOOK THE VIEW THAT THE FOUR FLATS REPRESENTING THE SHARE OF THE OWNER OF THE PROPERTY IN A JDA SHOULD BE CONSIDERED AS A RESIDENTIAL HOUSE FOR THE PURPOSE OF ALLOWING DEDUCTION U/S. 54 OF THE ACT. THE AO, HOWEVER, WAS OF THE VI EW THAT THE AFORESAID DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AN D HE THEREFORE DID NOT ALLOW THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 54. THE DEDUCTION WAS ALLOWED BY THE AO AS FOLLOWS:- 6. THE ASSESSEE HAS GOT BUILT UP AREA OF 3300 SQ.F T. OUT OF TOTAL BUILT UP AREA OF 10000 SQ.FT. THE ASSESSEE HAS ADOPTED R S.3000/SQ.FT. WHILE DETERMINING THE CONSIDERATION RECEIVED FOR TH E PURPOSE OF CAPITAL GAINS. BY ADOPTING THE SAME RATE LTCG IN T HIS CASE HAS BEEN WORKED OUT AS UNDER: SALE CONSIDERATION IN RS. 99,00,000 (BY ADOPTING RS.3000/SQ.FT. BUILT UP AREA) ITA NO.625/BANG/2015 PAGE 5 OF 8 LESS: COST OF ACQUISITION COST INDEXED FMV TAKEN AT 3000 AS ON 1.4.1981 PER CENT FOR 15 CENTS X 67% SHARE TRANSFERRED: 30150X711/100 FOR FY 30,150 2,14,367 COST OF IMPROVEMENT 1981-82 40000X711/100X2/3 26,667 1,89,603 ----------- CAPITAL GAINS 94,96,030 LESS: EXEMPTION ALLOWED ON FLAT NO.301 MEASURING 1325 SQ.FT. @ 3000 39,75,000 ------------- TAXABLE CAPITAL GAINS 55,21,030 ------------- 6. IN OTHER WORDS, THE AO ALLOWED EXEMPTION ONLY IN RESPECT OF ONE FLAT MEASURING 1325 SQ.FT. U/S. 54 OF THE ACT. 7. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOLL OWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF SMT. K.G. RUKMINIAMMA (SUPRA) AND THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. B.R. KARPAGAM, TCA NO.301 OF 2014 DATED 18.8 .2014 , HELD THAT ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S. 54 IN RESPECT OF TWO FLATS WHICH ARE LOCATED ON THE THIRD FLOOR. FOLLOWING WE RE THE OBSERVATIONS OF THE CIT(APPEALS):- 5. AFTER CONSIDERING THE FACTS OF THE CASE VIS-A-V IS THE PRONOUNCEMENTS, I AM OF THE RESPECTFUL VIEW THAT TH E POSITIONING / LOCATION OF FLATS WAS CONSIDERED ONLY IN THE FIRST DECISION, WHICH WAS FOLLOWED SUCCESSIVELY WITHOUT CONSIDERING PROXI MITY BETWEEN THE FLATS. INTERPRETING THE FIRST DECISION, IT IS VERY, CLEAR THAT PROXIMITY BETWEEN THE NUMBER OF FLATS IS AN IM PORTANT ITA NO.625/BANG/2015 PAGE 6 OF 8 CONDITION TO BE SATISFIED. HENCE, IN MY CONSIDERED VIEW, THE ASSESSEE WILL BE ENTITLED TO THE DEDUCTION U/S. 54F OF THE ACT, WITH RESPECT TO FLAT NOS. 301 & 302 ONLY ON THE THIRD FL OOR. THE THIRD UNIT BEING ON THE FIRST FLOOR IS COMPLETELY DISJOIN TED AND LACKS PROXIMITY. IT IS ORDERED ACCORDINGLY. 8. IN COMING TO THE AFORESAID CONCLUSION, THE CIT(A ) HAS FOLLOWED THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. D. ANANDA BASAPPA, 309 ITR 329 (KARN) , WHEREIN A VIEW WAS TAKEN THAT IF THE TWO UNITS ARE ADJACENT TO EACH OTHER, THEN THEY COU LD BE REGARDED AS A RESIDENTIAL UNIT. 9. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REVE NUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN CIT & ANR. VS. D. ANANDA BASAPPA (2009) 223 CTR (KAR) 186 : (2009) 309 ITR 329 (KAR ) HIGH COURT OF KARNATAKA HAS OBSERVED THAT EXPRESSION 'A RESIDE NTIAL HOUSE' SHOULD NOT BE UNDERSTOOD TO INDICATE A SINGULAR NUMBER; ASSESS EE HAVING PURCHASED TWO RESIDENTIAL FLATS, EXEMPTION UNDER S. 54 WAS AV AILABLE, MORE SO AS THESE FLATS ARE SITUATED SIDE BY SIDE AND THE BUILD ER HAS EFFECTED MODIFICATION OF THE FLATS TO MAKE IT AS ONE UNIT. 11. FOLLOWING CIT VS. D. ANANDA BASAPPA (2009) 22 3 CTR (KAR) 186 : (2009) 309 ITR 329 (KAR), IT WAS HELD IN CIT & ANR. VS. SMT. K.G. RUKMINIAMMA (2011) 239 CTR (KAR) 435 : (2011) 331 I TR 211 (KAR) THAT EXPRESSION 'A RESIDENTIAL HOUSE' USED IN S. 54 SHOU LD BE UNDERSTOOD IN A ITA NO.625/BANG/2015 PAGE 7 OF 8 SENSE THAT THE BUILDING SHOULD BE OF RESIDENTIAL NA TURE AND 'A' SHOULD NOT BE UNDERSTOOD TO INDICATE A SINGULAR NUMBER. ASSESS EE WAS ENTITLED TO CLAIM EXEMPTION UNDER S. 54 IN RESPECT OF FOUR RESI DENTIAL FLATS ACQUIRED BY HER. 12. THE CIT(A) HAS FOLLOWED THE DECISION OF THE HO NBLE JURISDICTIONAL HIGH COURT AND THEREFORE THE SAID ORDER DOES NOT RE QUIRE ANY INTERFERENCE. THE ASSESSEE WAS THEREFORE ENTITLED TO EXEMPTION U/ S.54 OF THE ACT IN RESPECT OF THE TWO FLATS WHICH WERE BOTH LOCATED IN THE THIRD FLOOR. WE THEREFORE FIND NO MERITS IN THIS APPEAL BY THE REVE NUE AND THE SAME IS DISMISSED. 13. IN THE RESULT THE APPEAL BY THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 7 TH AUGUST, 2015. /D S/ ITA NO.625/BANG/2015 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.