BHUPENDRA CHHAGANLAL PATEL, MUMBAI V. ITO 30 (1)(2), MUMBAI

ITA 6516/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1894 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 14-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMA
• Assessee Lawyers: RUPAL VORA
• Keywords: Capital asset; Share purchase agreement; Capital Gains
• Section: 143(3); 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO.6516/MUM/2018 ( ASSESSMENT YEAR: 2011-12) BUPENDRA CHHAGANLAL PATEL, B-503, GREEN PARK, BUILDING NO. 5, GOKULVILLAGE, SHANTI PARK, MIRA ROAD (E), THANE- 401107. VS. I.T.O.-30(1)(2), MUMBAI PAN/GIR NO.BFOPP 3054 B (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY MS. RUPAL VORA REVENUE BY SHRI KUMAR PADMAPANI BORA (SR.DR) DATE OF HEARING 05/12/2019 DATE OF PRONOUNCEMENT 09/12/2019 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 20/08/2018 OF LD. CIT(A)-41, MUMBAI FOR THE A.Y. 20 11-12 IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED FOR NO T ALLOWING THE BENEFIT OF LONG TERM CAPITAL GAIN ON THE SALE OF RE SIDENTIAL FLAT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE, ALONGWITH HIS MOTHER A ND BROTHER, MR. JAYESH C PATEL, PURCHASED FLAT NO. 11 IN VASUDEV AP ARTMENT COOPERATIVE ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 2 SOCIETY LTD. AFTER THE ASSESSEES MOTHER DEATH IN 2 006, THE SAID FLAT WAS TRANSFERRED IN THE JOINT NAMES OF THE ASSESSEE AND HIS BROTHER, MR. JAYESH C PATEL, MAKING THE TWO BROTHERS 50% OWNERS OF THE SAID FLAT. 4. SUBSEQUENTLY THE SAID SOCIETY VACHSL ENTERED INT O A DEVELOPMENT AGREEMENT WITH A DEVELOPER, M/S SADGURU REALTY PVT. LTD., FOR THE REDEVELOPMENT OF THE BUILDING CONSISTING OF 19 FLAT S, AS THE BUILDING WAS MORE THAN 40 YEARS OLD AND NOT IN SOUND CONDITION. AS PER CLAUSE 9 AT PAGE 11 OF THE SAID AGREEMENT, THE DEVELOPERS CONFI RM AND DECLARE THAT THE SOCIETY WILL BE THE SOLE AND EXCLUSIVE OWNER OF THE BUILDING. FURTHER, THE SAID AGREEMENT STATES THAT THE SOCIETY SHALL GR ANT LICENSE TO THE DEVELOPERS TO ENTER UPON THE SAID PROPERTY AND COMM ENCE THE WORK OF DEVELOPMENT. 5. THEREAFTER, ON 25.09.2008, THE MEMBERS OF VACHSL , INCLUDING THE ASSESSEE AND HIS BROTHER, ENTERED INTO AN AGREEMENT FOR PERMANENT ALTERNATIVE ACCOMMODATION (PAA) WITH THE DEVELOPER. THE POSSESSION OF THE NEW FLAT NO. 301 IN THE REDEVELOPED BUILDING WA S HANDED OVER BY THE DEVELOPER ON 03.10.2010. 6. THE SAID NEW FLAT NO. 301 WAS SOLD BY THE ASSESS EE AND HIS BROTHER TO MRS. MEENA ATUL SHAH AND MR. ATUL PREMJI SHAH VIDE AGREEMENT DATED 11.10.2010 FOR A CONSIDERATION OF R S. 42,00,000/-. THEREAFTER, THE ASSESSEE PURCHASED ANOTHER RESIDENT IAL FLAT IN GREEN PARK ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 3 BUILDING, THANE FOR A CONSIDERATION OF RS. 15,11,00 0/- VIDE AGREEMENT DATED 27.10.2010, OUT OF HIS SHARE OF CAPITAL GAINS ARISING ON THE SALE OF THE FLAT NO. 301 IN VACHSL. HOWEVER, THE A.O. DECLI NED THE ASSESSEES CLAIM OF DEDUCTION U/S 54F OF THE ACT AN D HELD THAT THE NEW FLAT SO SOLD WAS SHORT TERM CAPITAL ASSET FOR W HICH DEDUCTION U/S 54F OF THE ACT CANNOT BE GIVEN. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O., AGAINST WH ICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 7. THE LD AR APPEARING ON BEHALF OF THE ASSESSEE HA S DRAWN OUR ATTENTION TOWARDS CLAUSE (12) AT PAGE 8 OF THE AGRE EMENT, ACCORDING TO WHICH THE ASSESSEE AND HIS BROTHER ARE NOT SURRENDE RING OR RELINQUISHING THEIR RIGHTS AND INTEREST IN ANY MANNER WHATSOEVER AND THEY CONTINUE TO BE A MEMBER AND SHAREHOLDER, ENTITLED TO THE ALLOTM ENT OF THE NEW FLAT. FURTHER AT PAGE 9 CLAUSE (16) OF THE PAA AGREEMENT, IT WAS STATED THAT FOR ALL PURPOSES, VACHSL WILL CONTINUE TO BE IN POS SESSION OF THE PROPERTY AND THE DEVELOPER WILL HAVE ONLY A LICENSE TO ENTER UPON THE PROPERTY FOR THE PURPOSE OF DEVELOPMENT/CONSTRUCTIO N OF NEW BUILDING AS A MERE LICENSEE. OUR ATTENTION WAS ALSO INVITED TO CLAUSES (11) & (12) AT PAGE 4 OF THE AGREEMENT, ACCORDING TO WHICH THE ASS ESSEE AND HIS BROTHER ARE IN OCCUPATION AND POSSESSION OF FLAT NO . 11 ADMEASURING 571.1 SQ.FEET CARPET AREA AND THEY WILL BE ALLOTTED FLAT NO. 30`1 ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 4 ADMEASURING 571.1 SQ.FEET IN THE PROPOSED NEW BUILD ING, IN LIEU OF THE OLD FLAT NO. 11. 8. AS PER THE LD AR WHEN THE ASSESSEE AND HIS BROTH ER RECEIVE THE DEVELOPED FLAT FROM THE DEVELOPER, NO TRANSFER TAKE S PLACE AND HENCE THERE IS NO RESULTANT CAPITAL GAINS IN 2010. THE PO SSESSION OF THE OLD FLAT AT ALL TIMES REMAINS WITH THE ASSESSEE AND HIS BROT HER AS HAS BEEN CULLED OUT FROM THE PAA AGREEMENT, AND THE DEV ELOPER HAS ONLY A LICENSE TO ENTER AND DEVELOP THE PROPERTY. THE OLD FLAT IS NOT TRANSFERRED TO THE DEVELOPER IN EXCHANGE FOR THE NEW FLAT. THE OWNERSHIP AND THE POSSESSION OF THE OLD FLAT HAS AT ALL TIMES BEEN WI TH THE ASSESSEE AND HIS BROTHER AND IT IS NOT TRANSFERRED TO THE DEVELOPER AS CONTENDED BY THE ASSESSING OFFICER (AO). THIS FACT IS ALSO SUBSTANTI ATED BY THE SHARE CERTIFICATE NO. 16 WHICH IS THE SAME SHARE CERTIFIC ATE BEARING THE SAME DISTINCTIVE NUMBERS 76 TO 80 AND HAVING ALL THE END ORSEMENTS AT ITS BACK PERTAINING TO THE CHANGE OF OWNERSHIP OF THE O LD FIAT AS WELL AS THE NEW DEVELOPED FLAT. 9. THE LD AR HAS FURTHER ARGUED THAT AFTER RECEIVIN G THE DEVELOPED FLAT FROM THE DEVELOPER, WHEN THE ASSESSEE AND HIS BROTHER SELL THE DEVELOPED FLAT TO MR. AND MRS. SHAH, A TRANSFER TAK ES PLACE, RESULTING IN CAPITAL GAINS. FOR THE PURPOSES OF THE COMPUTATION OF THE CAPITAL GAINS THE COST OR THE PURCHASE PRICE TO BE CONSIDERED WILL BE THE ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 5 COST OF THE OLD FLAT WHICH IS RS. 4,50,000/- AND TH E DATE OF PURCHASE WILL BE 20.06.1991, BEING THE DATE OF PURC HASE OF THE OLD FLAT. THE VALUE OF THE REDEVELOPED FLAT AND THE DAT E OF GETTING THE REDEVELOPED FLAT CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTATION OF THE CAPITAL GAINS. 10. AS PER THE LD AR SINCE THE ASSESSEE HAS INVESTE D HIS SHARE OF CAPITAL GAINS IN THE PURCHASE OF A NEW RESIDENTIAL FLAT IN GREEN PARK, THANE, THUS CLAIMING THE BENEFIT OF SECTION 54 OF T HE INCOME TAX ACT AND HENCE THE RESULTANT LONG TERM TAXABLE CAPITAL GAINS IS NIL. 11. ON THE OTHER HAND, THE LD DR HAS STATED THAT TH E SAID FLAT WAS TRANSFERRED TO THE DEVELOPER FOR THE PURPOSE OF CON STRUCTING NEW BUILDING AND AFTER NEW BUILDING WAS CONSTRUCTED, THE DEVELOP ER AGAIN TRANSFERRED ALL THE RIGHTS IN THE FLAT TO THE ASSESSEE IN LIEU OF OLD FLAT SURRENDERED BY HIM. THUS, THE LD DR HAS STATED THAT THE LONG TERM CAPITAL GAIN AROSE TO THE ASSESSEE WHEN THE OLD FLAT WAS HANDED OVER FOR DEMOLITION IN CONSIDERATION OF THE NEW FLAT. THUS, THE ASSESSEE H AD ALREADY AVAILED BENEFIT OF HOLDING THE OLD FLAT FOR MORE THAN 36 MO NTHS AND NOW WHAT IS SOLD IS A NEW FLAT ALLOTTED TO THE ASSESSEE ON 11/1 0/2010. THUS, THE CAPITAL ASSET SO SOLD WAS A SHORT TERM CAPITAL ASSE T. SINCE IT WAS ACTUALLY SOLD ON 27/10/2010 I.E. AFTER HOLDING FOR 16 DAYS O NLY. ACCORDINGLY, HE JUSTIFIED THE ACTION OF THE LOWER AUTHORITIES FOR D ECLINING THE CLAIM OF EXEMPTION U/S 54 OF THE ACT. ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 6 12. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT THE ASSESSEE HAS SOLD FLAT WHICH WAS ALLOTTED TO HIM ON THE CONSTRUCTION OF NEW BUILDING AFTER ALL THE RESIDENTS OF THE SOCIET Y HAD SURRENDERED THAT BUILDING TO THE DEVELOPER. THE CRUX OF THE ARGUMENT OF THE LD AR WAS THAT THE ASSESSEE AND OTHER RESIDENTS DID NOT TRANS FER THEIR FLAT TO THE DEVELOPER AND FOR THE FIRST TIME FLAT WAS TRANSFERR ED ON ITS WILL ON 11/10/2010. IT APPEARS THAT THE VARIOUS CLAUSES OF THE AGREEMENT PERMANENT ALTERNATE ACCOMMODATION (PAA) WITH THE DEVELOPER WAS NOT PROPERLY APPRECIATED BY THE A.O. WHILE DECLINING TH E ASSESSEES CLAIM OF HOLDING THE FLAT FOR MORE THAN 36 MONTHS BEFORE TRA NSFER. THEREFORE, IN THE SUBSTANTIAL INTEREST OF JUSTICE, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR EXAMINING THE VARIOUS CLAUSES OF TH E PAA TO FIND OUT IF THERE WAS ANY TRANSFER OF OLD FLAT IN FAVOUR OF THE DEVELOPER AND FOR DECIDING THE ISSUE AFRESH ON MERIT AS PER LAW. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH DECEMBER, 2019. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 09/12/2019 *RANJAN ITA NO. 6516/MUM/2018 BHUPENDRA CHHAGANLAL PATEL VS ITO 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//