HIMMADIHALLI BACHANNA KRISHNA MURTHY,BENGALURU vs. INCOME-TAX OFFICER, WARD - 4(2)(2), BENGALURU, BENGALURU

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE ` BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER

ITA No. 479/Bang/2026 Assessment Year: 2011-12

Himmadihalli Bachanna Krishna The Income Tax Officer, Vs. Murthy, Ward – 4(2)(2), 231, Nagondanahalli Main Road, Bengaluru. Immadhalli Village and Post, Whitefield, Bengaluru – 560 066. PAN – BCUPK 3056 R APPELLANT RESPONDENT Assessee by : Shri V Srinivasan, Advocate Revenue by : Shri N Balusamy, JCIT (DR) Date of hearing : 06.05.2026 Date of Pronouncement : 30.06.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal filed at the instance of the assessee is directed against the order of the learned Commissioner of Income Tax-Appeal (hereafter- Learned CIT(A) at National Faceless Appeal Centre-Delhi for the Assessment Year 2011-12, under the provision of section 250 read with section 254 of the Income Tax Act, 1961 (hereafter-the Act) dated 12th January 2026.

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4.1 The assessment was completed under section 147 r.w.s. 144 of the Act as on 21st December 2018. The AO presumed that the property under the JDA was effectively transferred on the date of JDA as per the provision of section 2(47)(v) of the Act read with section 53A of the Transfer of property Act as the possession of the property was given to developer. Accordingly, the AO estimated the sales consideration by of cost of construction of the unit receivable to the assessee at the rate of Rs. 2500 per Sq. ft. As the owners were entitle to 96030 sq. ft. of constructed area and the assessee shares was 1/3 in the owners’ share, an addition of long- term capital gain of Rs. 8,00,25,000/- was made [(96030/3) x Rs. 2500]. The addition made was subsequently confirmed by the learned CIT(A) vide ex-parte order dated vide order dated 16th June 2023. On second appeal before the Tribunal in ITA No. 593/Bang/2023, the Hon’ble Bench vide order dated 10th October 2023 set aside the finding of the lower authority and restored the matter to the file of the AO for denovo assessment.

4.2 During the set aside assessment proceedings, the assessee submitted that the addition of long-term capital gain of Rs. 8,00,25,000/- was wrongly proposed merely on the basis of the JDA. The assessee contended that though a JDA dated 07.03.2011 was entered into with M/s Saroj Group for development of the property, there was no actual transfer of ownership of the property during the relevant year. It was submitted that possession of the land was handed over only for the limited purpose of development activity and such possession did not amount to transfer of legal ownership. The assessee further submitted that the provisions of section 2(47) read with section 53A of the Transfer of Property Act were not applicable in the manner alleged by the AO. The assessee also stated

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that long-term capital gain in respect of the flats received under the JDA had already been offered to tax in subsequent assessment year (A.Y. 2017-18) when the 2 flats were actually sold. The assessee further submitted copies of the JDA and certain income tax acknowledgements in support of the claim.

4.3 The assessee also submitted that out of the 5 flats received under the JDA, only two flats had been sold, and the corresponding capital gain was disclosed in the return of income of A.Y. 2017-18. It was further stated that the assessee continued to hold 3 flats allotted under the JDA and therefore no taxable transfer had taken place in the year under consideration merely because the development agreement was entered into.

4.4 However, the AO was not convinced with the submissions of the assessee. The AO, during the set aside assessment proceedings, examined the Joint Development Agreement dated 07.03.2011 entered by the assessee along with other co-owners with M/s Saroj Group for development of the property situated at Nagondanahalli Village, Bengaluru. The AO observed that under the terms of the JDA and supplementary agreement dated 07.02.2013, the landowners had handed over possession of the property to the developer for the purpose of construction and development of a multi-storied residential/commercial project. The AO noted that the supplementary agreement clearly provided that the owners would receive 69 residential units having total super built- up area of approximately 96,030 sq. ft., whereas the builder would receive 107 units having total super built-up area of approximately 1,44,048 sq.

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ft. Since the assessee held 1/3rd share in the property, the assessee’s share of super built-up area worked out to 32,010 sq. ft or 23 unit.

4.5 The AO further observed that the assessee, despite several opportunities, failed to produce any satisfactory documentary evidence to establish that the capital gains arising from the JDA transaction were offered to tax in subsequent years. Though the assessee has disclosed small amount of capital gain in the A.Y. 2017-18 upon sale of 3 flats received under the JDA. But no supporting evidence such as sale deeds, computation of capital gains, completion certificate, year-wise details of sale of flats, or corresponding income tax records were furnished before the AO. The AO also observed from the income tax portal that the assessee had not filed returns of income for several assessment years from AYs 2012-13 to AY 2016-17 and had also failed to disclose any substantial capital gains in later years except a small amount disclosed in AY 2017-18, which according to the AO was not substantiated to be connected with the JDA property. Therefore, the AO held that the explanation of the assessee remained unsupported and unacceptable.

4.6 The AO further relied upon the material collected during original assessment proceedings, including information obtained from M/s Saroj Group u/s 133(6) of the Act. The builder had furnished details regarding the JDA, sharing ratio, built-up area, consideration, and project details. Based on such materials, the AO formed a view that possession of the land had already been irrevocably handed over to the developer in part performance of the contract and therefore the transaction squarely fell within the scope of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act. The AO held that once possession was

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handed over and development rights were granted to the developer, there was transfer of a capital asset for the purpose of capital gains taxation.

4.7 The AO also placed heavy reliance on the statement recorded of the assessee during survey proceedings conducted u/s 133A of the Act in the case of M/s Saroj Group. In the statement, the assessee admitted entering the JDA and also admitted receipt of Rs. 40 lakhs as non- refundable deposit, out of which Rs.10 lakhs was received through cheque and Rs.30 lakhs in cash. The assessee further admitted that he had not paid capital gains tax on the transaction and stated that he would consult his auditor and pay the taxes accordingly. According to the AO, the said statement clearly established that the assessee himself had accepted the taxability of capital gains arising from the JDA transaction.

4.8 The AO thereafter relied upon the decision of the Hon’ble Karnataka High Court in the case of CIT vs. T.K. Dayalu reported in 14 taxmann.com 120 and the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in 260 ITR 491 for the proposition that transfer under section 2(47)(v) takes place once possession is handed over to the developer in part performance of the contract. The AO observed that the JDA in the present case was a registered agreement and all the conditions prescribed under section 53A of the Transfer of Property Act stood satisfied. According to the AO, the developer had taken possession of the property, undertaken development activities, paid part consideration to the owners, and was willing to perform its obligations under the agreement. Therefore, the transaction constituted a deemed transfer within the meaning of section 2(47)(v) of the Act. Accordingly, the AO concluded that long-term capital gain had

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arisen to the assessee during AY 2011-12 itself on account of transfer of development rights under the JDA. The AO computed the taxable long- term capital gain by adopting the cost of construction method at Rs. 2,500 per sq. ft. on the assessee’s share of 32,010 sq. ft., which worked out to Rs. 8,00,25,000/- only. The said amount was accordingly brought to tax as long-term capital gain in the hands of the assessee.

5.1 The assessee further submitted that the AO merely repeated the findings recorded in the original ex-parte assessment order without independently examining the objections and evidences filed during the set aside proceedings. It was contended that for applicability of section 53A of the Transfer of Property Act, there must be transfer of possession coupled with control over the property in favour of the developer.

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However, in the present case, only a limited licence was granted to the developer to enter the property for construction and development purposes and such permissive possession could not be equated with legal possession contemplated under section 53A of the Transfer of Property Act.

5.2 The assessee strongly relied upon the decision of the Hon’ble Supreme Court in the case of Seshasayee Steels (P.) Ltd. vs. ACIT reported in 421 ITR 46 and submitted that mere permission granted to a developer to enter upon the land for development does not amount to “transfer” under section 2(47)(v) of the Act. The assessee pointed out that the Hon’ble Supreme Court has categorically held that licence to enter property for development activity cannot be treated as handing over possession within the meaning of section 53A of the Transfer of Property Act. The assessee argued that the facts of the present case were squarely covered by the ratio laid down by the Hon’ble Supreme Court since the developer was never placed in legal possession or control of the property during the relevant year.

5.3 The assessee also relied upon the decisions of the Hon’ble ITAT Bangalore Bench in the cases of Kola Venkat Rama Naidu in ITA No. 206/Bang/2020 dated 05/08/2022 and M/s Anugraha Shelters Pvt. Ltd in ITA No. 2314/Bang/2016 dated 22/11/2021, wherein under similar circumstances it was held that where the JDA itself clarifies that no possession is handed over to the developer in terms of section 53A of the Transfer of Property Act, the provisions of section 2(47)(v) of the Act would not apply in the year of execution of the JDA. On the strength of these judicial precedents, the assessee contended that the addition of Rs.

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8,00,25,000/- made as long-term capital gains deserved to be deleted in entirety.

5.4 The assessee further submitted that the AO wrongly relied upon the statement recorded during survey proceedings u/s 133A of the Act. It was argued that statement recorded during survey proceedings has no evidentiary value since the income tax authorities conducting survey proceedings are not empowered to administer oath. Reliance was placed upon the decisions of the Hon’ble Supreme Court in the case of CIT vs. S. Khader Khan Son reported in 352 ITR 480 and Pullangode Rubber Produce Co. Ltd. reported in 91 ITR 18. The assessee also relied upon CBDT Instruction F.No. 286/2/2003-IT(Inv.) dated 10.03.2003, wherein the Board directed that no attempt should be made to obtain confessions during search and survey proceedings and assessments should be based upon material evidence collected during such proceedings. The assessee therefore submitted that the alleged admission made during survey proceedings could not by itself form the sole basis for making the impugned addition.

5.5 Without prejudice to the above contentions, the assessee also challenged the computation of capital gains made by the AO. It was submitted that adoption of Rs. 2,500 per sq. ft. as cost of construction for determining the full value of consideration was arbitrary and without any basis. The assessee further submitted that proper deduction towards cost of acquisition of land ought to have been granted while computing capital gains.

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5.6 The assessee also submitted that in any case he (the assessee) was entitled for deduction u/s 54F of the Act in respect of the residential apartments received under the JDA since the same constituted investment in residential property. It was therefore contended that even assuming without admitting that any capital gain arose, the assessee was entitled to exemption u/s 54F of the Act.

5.7 However, the learned CIT(A) rejected the assessee’s grounds and confirmed the findings of the AO. The learned CIT(A), while rejecting the grounds raised by the assessee and confirming order passed by the AO, observed that under the JDA dated 07/03/2011, the developer was granted substantial rights over the property including the right to enter upon the land, undertake construction, obtain approvals and market its share of flats. The learned CIT(A) observed that though one clause in the JDA mentioned that the permission granted should not be construed as possession u/s 53A of the Transfer of Property Act, the real test under the Income-tax Act was the actual substance of the transaction and not the terminology used in the agreement. According to the learned CIT(A), the surrounding circumstances clearly showed that the developer had obtained effective control and beneficial possession of the property for carrying out development activities and therefore the conditions of section 2(47)(v) read with section 53A of the Transfer of Property Act stood satisfied.

5.8 The learned CIT(A) further noticed that the survey materials and the statement recorded of the assessee u/s 133A of the Act indicated that the developer had already entered the property and commenced construction activities pursuant to the JDA. It was therefore held that the

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assessee and other landowners had parted with substantial rights in the property during the financial year relevant to A.Y. 2011-12 itself. The learned CIT(A) held that the developer could not have carried out construction activities and exercised development rights unless effective possession and control over the property had been handed over.

5.9 The learned CIT(A) thereafter relied upon the decision of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia reported in 260 ITR 491 and the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Dr. T.K. Dayalu reported in 202 Taxman 531. By relying upon the aforesaid decisions, the learned CIT(A) held that where possession and development rights are handed over to the developer under a JDA and consideration is determinable, transfer within the meaning of section 2(47)(v) of the Act takes place in the year of execution of the JDA itself. According to the learned CIT(A), the facts of the assessee’s case clearly satisfied the requirements of section 53A of the Transfer of Property Act and therefore capital gains were rightly chargeable in A.Y. 2011-12.

5.10 The learned CIT(A) also rejected the reliance placed by the assessee on the decision of the Hon’ble Supreme Court in the case of Seshasayee Steels (P.) Ltd. reported in 421 ITR 46. According to the learned CIT(A), the said decision was rendered in a different factual background where the agreement was unregistered and the conditions of section 53A were not fulfilled. The learned CIT(A) observed that the ratio of the said judgment could not be applied to the present case where the JDA was registered, development activities had commenced and the

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developer had obtained effective possession and control over the property.

5.11 The learned CIT(A) further rejected the contention of the assessee that capital gains should be taxed only in A.Y. 2017-18 when certain flats received under the JDA were sold. According to the learned CIT(A), the subsequent sale of flats constituted a separate transaction and does not postpone the taxability of capital gains arising from transfer of land/development rights under the JDA. It was held that once possession and development rights were parted with under the JDA, the transfer stood completed for the purpose of section 2(47)(v) of the Act and therefore capital gains arose in A.Y. 2011-12 itself.

5.12 With regard to the assessee’s objection on reliance placed upon statement recorded u/s 133A, the learned CIT(A) observed that the addition was not made solely on the basis of survey statement. According to him, the addition was supported by the terms of the JDA, commencement of construction activities and other materials gathered during survey proceedings. The statement recorded during survey was treated only as corroborative evidence. Therefore, the learned CIT(A) rejected the contention of the assessee that the addition was invalid merely because reliance was placed on the survey statement.

5.13 On the issue relating to valuation of consideration, the learned CIT(A) upheld the action of the AO in adopting the rate of Rs. 2,500 per sq.ft. for valuing the built-up area receivable by the assessee under the JDA. The learned CIT(A) observed that the AO had adopted the said value on the basis of contemporaneous information available from the

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developer’s books and survey findings regarding prevailing construction cost and market value of similar residential projects in Bengaluru during the relevant period. The learned CIT(A) further observed that the assessee had not produced any independent valuation report or comparable instances to establish that the value adopted by the AO was excessive. Therefore, the valuation adopted by the AO was upheld.

5.14 The learned CIT(A) also rejected the assessee’s claim for deduction towards cost of acquisition by observing that despite sufficient opportunity granted during the de novo proceedings, the assessee failed to furnish documentary evidence relating to original cost of acquisition, date and mode of acquisition or indexation workings. According to the learned CIT(A), the burden to substantiate the claim of deduction rested upon the assessee and in the absence of supporting evidence, the AO was justified in not allowing any deduction towards cost of acquisition.

5.15 The learned CIT(A) further rejected the claim of exemption u/s 54F of the Act. It was observed that though exemption u/s 54F could be available in appropriate JDA cases, the assessee had failed to furnish evidence regarding allotment or handing over of flats, investment of consideration in a qualifying residential property and fulfilment of other statutory conditions prescribed u/s 54F of the Act. The learned CIT(A) also observed that the assessee himself had taken a stand that capital gains arose only in A.Y. 2017-18 and therefore the claim of exemption u/s 54F of the Act in A.Y. 2011-12 was inconsistent with his own stand. Accordingly, the claim for exemption u/s 54F was rejected. Accordingly, the learned CIT(A) confirmed the addition of Rs. 8,00,25,000/- made by

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the AO towards long-term capital gains arising from the JDA dated 07/03/2011 and dismissed all the grounds raised by the assessee.

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clearly established that possession and substantial development rights were irrevocably transferred to the developer, thereby satisfying the conditions of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act. The assessee had also admitted during survey proceedings that consideration had been received and that capital gains were payable. The learned DR contended that the assessee failed to produce any reliable evidence to substantiate the claim that the capital gains had been offered to tax in subsequent years or to support the claim for deduction under section 54F. Reliance was placed on the decisions of the Hon'ble Karnataka High Court in Dr. T.K. Dayalu and the Hon'ble Bombay High Court in Chaturbhuj Dwarkadas Kapadia. It was, therefore, prayed that the order of the learned CIT(A) be upheld and the appeal of the assessee be dismissed.

9.1 Before dwelling into the facts of the case on hand, we discuss the scheme of taxation in case of JDA. Under a JDA, the scheme of taxation for a landowner operates in two distinct stages, depending on the nature of consideration and subsequent events. The first stage of taxation arises on account of transfer of land under the scheme of JDA and second stage arises when the landowner sales the constructed flats or units received under the JDA to third parties.

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9.2 Before the introduction of section 45(5A) of the Act, the taxation of income arising to a landowner at the first stage was governed by the general provisions of section 45(1) read with section 2(47) of the Act. In such cases, capital gains were sought to be taxed in the year in which there was a “transfer” of the capital asset. The Revenue generally took the view that execution of a JDA coupled with handing over of possession to the developer amounted to a transfer under section 2(47)(v) or (vi) of the Act. Accordingly, capital gains were assessed by the AO/revenue in the year of execution of the JDA or handing over the possession, even though the landowner had not actually received monetary consideration and the consideration was in kind, i.e., a share in the constructed area.

9.3 Coming to the facts of the case on hand, the JDA was entered as on 07-03-2011 relevant to A.Y. 2011-12 and subsequently possession was given to the developer to carry out the proposed development work. The assessee along with other 2 co-owner were entitled to receive 69 units/flats in which 1/3rd share of the assessee is 23 units/flat. From the order of the lower authorities, it is not clear when the project got completed. However, it is pertinent to note that the assessee has received 5 flats and out of 5 flats, 2 flats were sold in the year relevant to A.Y. 2017-18 which was offered to tax.

9.4 The allegation of the revenue is that in pursuance to the JDA, the possession of the land property was transferred to the developer. Further the assessee in the statement recorded during the survey at the premises of developer admitted having received sum of Rs. 40 lakhs as no refundable advance. Therefore, as per the provision of section 2(47)(v) of the Act, transfer took place in the previous year 2010-11 relevant to

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A.Y. 2011-12 i.e. the year in which JDA was entered and the possession of the land given to the developer. The AO holding so placed reliance on decision of Hon’ble Karnataka High Court in the case of DR. T.K. Dayalu reported in 14 taxmann.com 120.

9.5 On the contrary, the assessee consistently argued that the developer was merely permitted to enter upon the property for the limited purpose of carrying out development activities and no legal possession or control over the property was handed over in part performance of the contract. It was specifically pointed out that the JDA itself clearly stated that the permission granted to the developer shall not be construed as delivery of possession under section 53A of the Transfer of Property Act or section 2(47) of the Act. Therefore, according to the assessee, the basic condition necessary for invoking section 2(47)(v) of the Act was absent. The assessee in contending so has made reference to the various decision of Tribunal which mentioned in the preceding paragraph.

9.6 However, we are not inclined to accept the argument advance by the assessee. In our considered view, for the purpose of u/s 2(47)(v) of the Act, what is relevant is not transfer of legal title, but allowing possession to be taken or retained in part performance of the contract of the nature referred to in section 53A of Transfer of Property Act. In the case before us, the developer was admittedly allowed to enter upon the land and carry out the development pursuant to the JDA. Such possession was not independent or casual possession but was referable to the rights created under the JDA. Therefore, the assessee cannot avoid the consequences of section 2(47)(v) of the Act merely by relying upon the recital in the JDA that possession was not delivered.

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9.7 At this stage, it is relevant to refer to the decision of the Hon’ble Karnataka High Court in the case of Dr. T.K. Dayalu reported in [2011] 14 taxmann.com 120, wherein it was held that where, pursuant to a JDA, possession of the property is handed over to the developer and the developer is enabled to undertake development, the transaction results in transfer u/s 2(47)(v) of the Act in the year in which the agreement is entered into and possession is handed over. The facts of the present case are substantially similar. The assessee executed the JDA in the previous year 2010-11, allowed the developer to enter and develop the property, and received non-refundable advance. Therefore, the ratio laid down by the Hon’ble Jurisdictional High Court squarely applies.

9.8 The decisions relied upon by the assessee are distinguishable on facts. In those cases, either the development agreement had not been acted upon, or possession was not effectively given to the developer, or the conditions necessary for invoking u/s 2(47)(v) of the Act were found to be absent. However, in the present case, the JDA was acted upon, the developer was allowed to proceed with development, and the assessee became entitled to receive constructed area in lieu of transfer of development rights in the land. Therefore, those decisions do not advance the case of the assessee.

9.9 We also do not find merit in the contention that capital gain should arise only when the constructed flats were actually received or subsequently sold. Such subsequent sale of flats would constitute a separate stage of taxation. However, the first taxable event, being transfer of land/development rights under the JDA, arose when the JDA was executed and possession was handed over to the developer. The

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subsequent receipt or sale of flats cannot defer the charge of capital gains arising on transfer u/s 2(47)(v) of the Act. In view of the above, we hold that the transfer within the meaning of u/s 2(47)(v) of the Act was completed in the previous year relevant to A.Y. 2011-12, being the year in which the JDA was entered, and possession was given to the developer.

9.10 Be that as maybe and without prejudice to the above, we find that the AO has adopted the developer’s cost of construction as the measure of consideration for the assessee’s share of built-up area. In our considered view this approach is legally untenable. The cost of construction incurred by the developer is not the price paid to the assessee, but merely the developer’s expenditure in fulfilling his contractual obligation to deliver the constructed area. In our considered view, the “consideration” refers to what is received or accruing to the assessee because of the transfer. It cannot be equated to the expenditure incurred by another party in fulfilling his obligation. The builder’s cost of construction is his outlay, not the assessee’s income. Adopting it would amount to taxing someone else’s expenditure in the hands of the assessee, which is contrary to the scheme of the Act. The Hon’ble Karnataka High Court in CIT v. CPC Logistics Ltd. (2022) 134 taxmann.com 197 and PCIT v. Smt. Sarojini M. Kushe (2022) 442 ITR 327 in identical facts have categorically held that adopting the developer’s cost of construction as the landowner’s sale consideration is impermissible, since the developer may inflate or manipulate such figures to suit his purpose. However, the fact is that the assessee for transfer of land in favour of the developer in pursuance to JDA has received consideration in kind being built-up unit (23 flats). Thus, the question arises what value of consideration should be adopted in the given facts and circumstances. In

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this respect, we find that the provision of section 45(5A) of the Act is relevant though brought into Act vide Finance Act 2017 and applicable from A.Y. 2018-19, which provide that the “stamp duty value, on the date of issue of the completion certificate of assessee’s shares of building in the project, as increased by any consideration received in cash or by a cheque or draft or by any other mode shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

9.11 Accordingly, we hold that sale consideration for the transfer of land to the developer in pursuance to the JDA should calculated adopting stamp duty value of built-up area received by the assessee. Thereafter, it is necessary to provide deduction of expenses if any incurred, indexed cost of acquisition and indexed cost of improvement if any. We note that AO has not provided cost of acquisition and cost of improvement if any which is contrary to provisions of the Act. Therefore, we direct the AO to adopt correct value of cost of acquisition to determine the value of long-term capital gain arising to the assessee on transfer of land property in pursuance to the JDA.

9.12 Now question arises whether the long-term capital arrived as per above laid procedure be brought to tax or whether the assessee shall be eligible for exemption/deduction under section 54/54F of the Act. The learned AR of the assessee before us contended whatever the capital gain arrived shall be considered as investment in the residential house. The learned AR contended entire flats allotted to the assessee shall be considered as investment in a residential house. We find force in argument of the learned AR of the assessee which is supported by the ruling of

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Hon’ble Jurisdictional High Court of Karnataka in the case of CIT vs. D. Ananda Basappa reported in 180 taxman 4. In the said case, the assessee, HUF sold a residential house and purchased 2 residential flats adjacent to each other through two different sale deeds. The assessee claimed the claimed exemption u/s 54 of the Act on account of purchase of those two flats. But the revenue authority restricted the exemption u/s 54 of the Act to the extent of purchase value of 1 flat. On appeal before the Tribunal by the assessee, the Tribunal decided the issue in favor of the assessee. On further appeal by the revenue before the Hon’ble High Court, the bench held as under: A plain reading of section 54(1) discloses that when an individual assessee or an HUF assessee sells a residential building or land appurtenant thereto, he can invest capital gain for purchase of a residential building to seek exemption of the capital gain tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. [Para 5] The contention of the revenue that the phrase 'a residential house' would mean one residential house, does not appear to the correct understanding. The expression 'a residential house' should be understood in a sense that building should be residential in nature and 'a' should not be understood to indicate a singular number. [Para 6] That when an HUF's residential house is sold, the capital gain should be invested for the purchase of only one residential house, is an incorrect proposition. After all, the property of the HUF is held by the members as joint tenants.

9.13 The ratio of the Hon’ble Karnataka High Court in the above- mentioned case was subsequently followed by the Hon’ble Delhi High Court in the case of CIT vs. Gita Duggal reported in 30 taxmann.com 230. In the said case the assessee was owner of property comprising of the basement, ground floor, first floor and second floor. She was deriving rental income from the property. On 08.05.2006 she entered into a collaboration agreement with M/s Thapar Homes Ltd. for developing the property. According to its terms, the assessee being desirous of getting the property redeveloped/reconstructed and not being possessed of sufficient finance and lacking in experience in construction, approached

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the builder to develop the property for and on behalf of the owner at the cost of the builder. The builder was to demolish the existing structure on the plot of land and develop, construct, and/or put up a building consisting of basement, ground floor, first floor, second floor and third floor with terrace at its own costs and expenses. In addition to the cost of construction incurred by the builder on development of the property, a further payment of Rs. 4 crores was payable to the assessee as consideration against the rights of the assessee. The builder was to get to the third floor. The assessee accordingly handed over vacant physical possession of the entire property along with 22.5% undivided interest over the land. The handing over of possession of the entire property was, however, only for the limited purpose of development; the undivided interest in the land stood transferred to the developer/builder only to the extent of 22.5% for his exclusive enjoyment. It was on these facts that the assessing officer first took the view that the sale consideration for the transfer of the capital asset should be taken not merely at Rs. 4 crores which was the cash amount received by the assessee, but the cost of construction incurred by the developer on the development of the property amounting to Rs. 3,43,72,529/- should also be added to the sale consideration. The assessee thereupon claimed that if the cost of construction incurred by the builder is to be added to the sale price, then the same should also be correspondingly taken to have been invested in the residential house namely the two floors which the assessee was to get in addition to the cash amount under the agreement with the builder, and the amount so spent on the construction should be allowed as deduction under section 54 of the Act. It was at this stage that the assessing officer rejected the claim for deduction under section 54 of the Act on the footing that the two floors obtained by the assessee contained two separate

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residential units having separate entrances and cannot qualify as a single residential unit. The AO agreed that the assessee was eligible for the relief under section 54F in respect of the cost of construction incurred on one unit. The dispute reached the Hon’ble Delhi High Court through the revenue appeal. The Hon’ble High Court in the given facts held as under: 8. It is the correctness of the above view that is questioned by the revenue and it is contended that the interpretation placed by the Tribunal gives rise to a substantial question of law. The assessee strongly relies upon the judgment of the Karnataka High Court (supra) which, it is stated, has become final, the special leave petition filed by the revenue against the said decision having been dismissed by the Supreme Court as reported in the annual digest of Taxman publication. The judgment of the Karnataka High Court supports the contention of the assessee. An identical contention raised by the revenue before that Court was rejected in the following terms : "A plain reading of the provision of section 54(1) of the Income-tax Act discloses that when an individual-assessee or Hindu undivided family- assessee sells a residential building or lands appurtenant thereto, he can invest capital gains for purchase of residential building to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT v. Smt K.G. Rukminiamma [2011] 196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.) . 9. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that

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requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited.

9.14 We further note the that coordinate bench of this tribunal in the case of Smt. Nethravathi vs. ITO bearing ITA No. 2630/Bang/2017 has also taken identical view. The relevant finding of the Tribunal is extracted as under: 11. We have given careful consideration to the rival submissions. We find that the facts of the Assessee’s case are similar to the case of Smt.K.G.Rukminiamma (supra) decided by the Hon’ble Karnataka High Court. In the case of K.G.Rukminiamma, the facts were on a site measuring 30’ x 110' the assessee had a residential premises. Under a joint development agreement she gave that property to a builder for putting up flats. Under the agreement 8 flats are to be put up in that property and 4 flats representing 48% is the share of the assessee and the remaining 52% representing another 4 flats is the share of the builder. So the consideration for selling 52% of the site was 4 flats representing 48% of built up area and the 4 flats are situated in a residential building. The Court held that the 4 flats constitute 'a residential house' for the purpose of sec 54. The 4 residential flats cannot be construed as 4 residential houses for the purpose of sec 54. It has to be construed as "a residential house" and the assessee is entitled to the benefit accordingly. In that view of the matter, the Court held that the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay Capital Gains tax as the case squarely falls under sec. 54 of the Income Tax Act, 1961. As far as the decision of the Hon’ble Madras High Court in the case of V.R. Karpagam (supra) is concerned the facts were similar to the case of the assessee. The assessee in the case of V.R.Karpagam entered into an agreement with M for development of a piece of land owned by it-As per agreement, assessee was to receive 43.75% of built up area after development,

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which was translated into five flats. The Assessee claimed exemption u/s 54F on the value of five flats. The AO granted benefit of capital gains in respect of one flat and the CIT( A) affirmed findings of AO holding that claim of assessee u/s 54F for all five flats could not be admitted, but however, he took the view that the assessee would be entitled to benefit of s 54F in respect of one single flat with largest area. In appeal, tribunal held that assessee was eligible for exemption u/s 54F on all five flats received by her in lieu of land she had parted with and word 'a' appearing in s 54F should not be construed in singular, but should be understood in plural. The Madras High Court upheld the order of the Tribunal. It was also held that amendment was made to s 54F with regard to word 'a' by Finance (No.2) Act, 2014 w.e.f only from 01.04.2015 withdrawing deduction for more than one flat (residential house). Post amendment, viz., from 01.04.2015, benefit of s 54F will be applicable to one residential house in India. However, prior to said amendment, a residential house would include multiple flats/residential units. Similar decisions were rendered on identical facts by the Hon’ble Madras High Court in the case of CIT vs Gumanmal Jain [2017] 80 taxmann.com 21 (Mds). As far as the decision of the Hon’ble Karnataka High Court in the case of Khubchand Makhija (supra) is concerned, as rightly pointed out by the learned counsel for the Assessee the facts of the aforesaid case are clearly distinguishable from the facts of the case of the Assessee and the facts of the case of K.G.Rukmaniamma (supra) decided by the Hon’ble Karnataka High Court. In the case of the Late Khubchand M Makhija (Supra), the facts were that one residential house was sold and the Long Term Capital Gain on such sale was used to buy two independent residential houses. This aspect has been noticed by the Hon’ble Court in paragraph 15 & 16 of the judgment in the case of Khubchand M.Makhija (supra) wherein the distinguishing facts between the facts of K.G.Rukminiammal(supra) and the facts of the case Khubchand M.Makhija (supra) were brought out by the Hon’ble Karnataka High Court. In the present case all the 13 flats were situate in the same premises and, therefore, the decision rendered in the case of Smt. K.G Rukminiamma (Supra) will apply. In the light of above judicial pronouncements on identical facts and circumstances of the case of the assessee we are of the view that the Assessee is entitled to deduction u/s.54F of the Act on all the 13 flats and there was no capital gain chargeable to tax in the hands of the assessee. We hold and direct accordingly and allow the appeal of the Assessee.

9.15 Therefore, respectfully following the ratio laid down by the Hon’ble Karnataka High court and Hon’ble Delhi High Court and Tribunal in the above-mentioned cases, we hold that the assessee will be eligible for deduction under section 54/54F of the Act on account of investment in a residential house considering the entire 23 flats as a residential house. Hence whatever the capital gain computed on transfer of land under the JDA as per procedure laid in the preceding paragraphs, is directed to considered as exempted under the provision of section 54/54F of the Act.

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Therefore, no addition is required to be on this account for the capital gain on the transfer of land in the scheme of JDA. Hence, the ground of appeal of the assessee is partly allowed.

Order pronounced in court on 30th day of June, 2026

Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 30th June, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore