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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI INTURI RAMA RAO
PER INTURI RAMA RAO, A.M.:
This appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Appeals)-1, Hyderabad for the Assessment Year 2010-11. Appellant raised the following grounds of appeal:- “1. The order of the Ld. CIT(A) is erroneous to the extent it is prejudicial to the appellant. 2. The Ld. CIT(A) erred in holding that capital gain on entering into the Development Agreement arose for the assessment year 2010-11 and not for the assessment year 2012-13. 3. The Ld. CIT(A) erred in holding that the appellant is not entitled for deduction u/s 54/54F of the I.T. Act in respect of both the flats allotted by the Developer to the appellant. 4. The Ld. CIT(A) ought to have seen that the deduction u/s 54/54F is allowable for both the flats and is not to be limited to one flat.”
Briefly stated relevant facts of the case are that the assessee is an individual. No return of income was voluntarily filed by the appellant. The Assessing Officer had come to know during the course of survey proceedings in the case of M/s. Lahari Constructions conducted on 2.1.2014 that the appellant had entered into a development agreement with M/s. Lahari Constructions for the development of land admeasuring 1781 sq. yards situated at Nallakunta of which the appellant is the owner of 50% of the property. The development agreement cum power of attorney was entered into between the appellant and the other owners viz., Sri Vijaya Rao Aedma and Sri Yadav Rao Aedma on 19.11.2009 vide Registered Document No.3106/2009. Subsequently, a supplementary agreement was entered on 24.08.2012 modifying the terms of agreement. The Assessing Officer was of the opinion that the transaction of entering into development agreement attracts capital gins as it amounts to “transfer” within the meaning of clause (v) of sub-section (47) of section 2 of the Income Tax Act, 1961 and therefore, issued a notice u/s 148 of the Act. In response to the notice u/s 148 it was submitted that as per the terms of the supplementary agreement, the appellant had received two flats as legal heir of his father late Yadav Rao Aedma and therefore, the Assessing Officer computed the capital gains by adopting the market value of the land parted with by the appellant. After allowing exemption u/s 54 of the Act in respect of one flat, the balance capital gains were brought to tax.
Being aggrieved, an appeal was preferred before the CIT(A) who vide the impugned order had partly allowed the appeal by directing the Assessing Officer to recalculate the capital gains only in respect of appellant’s share of the land admeasuring 296.84 sq. yards and
dismissed the other grounds of appeal. Aggrieved with the said decision of the Ld. CIT(A), assessee filed the present appeal before us.
During the proceedings before us, Learned Counsel for the Assessee had not pressed the grounds relating to challenging of levy of capital gains in the A.Y. 2010-11. However, the only ground relating to the exemptions u/s 54F of the Act was urged before us. In this regard, he submitted that the issue in grounds of appeal is squarely covered in favour of the assessee by the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Syed Ali Adil (352 ITR 418).
On the other hand, Learned Departmental Representative placed reliance on the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. The only issue raised in the grounds of appeal is whether the assessee is entitled for deduction u/s 54F in respect of the flats received as a consideration on entering into joint development agreement. The lower authorities had denied the claim of deduction u/s 54F of the Act solely on the ground that the appellant is not entitled to exemption more than one flat. This issue no longer res integra as decided by the Hon’ble jurisdictional High Court in the case of Syed Ali Adil (supra) wherein it was as under:-
“10. We see no force in the said contention. As held in D. Ananda Basappa's case (supra) by the Karnataka High Court, the expression "a residential house" in section 54 (1) of the Act has to be understood in a sense that the building should be of residential nature and "a" should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds. This decision was followed by the
Karnataka High Court in CIT v. Smt. K.G. Rukminiamma [2011] 196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.) where a residential house was transferred and four flats in a single residential complex were purchased by the assessee, it was held that all four residential flats constituted "a residential house" for the purpose of section 54 and that the four residential flats cannot be construed as four residential houses for the purpose of section 54. Admittedly the two flats purchased by the assessee are adjacent to one another and have a common meeting point. In the impugned order, the Tribunal has also relied upon the decisions in K.G. Vyas's case (supra), P.C. Ramakrishna, HUF's case (supra) and PremPrakash Bhutani's case (supra) wherein it was held that exemption under section 54 only requires that the property should be of residential nature and the fact that the residential house consists of several independent units cannot be an impediment to grant relief under section 54 even if such independent units were on different floors. The decision in Ms.Suseela M.Jhaveri's case (supra) holding that only one residential house should be given the relief under section 54 does not appear to be correct and we disapprove of it. We agree with the interpretation placed on section 54 by the High Court of Karnataka in D. Ananda Basappa's case (supra) and Smt. K.G. Rukminiamma's case (supra) and the decisions of the Mumbai, Chennai and Delhi Benches of the Tribunal in K.G. Vyas (supra), P.C. Ramakrishna, HUF (supra) and Prakash Bhutani (supra). We therefore hold that the CIT (Appeals) was correct in setting aside the order of the Assessing Officer and the Tribunal rightly confirmed the decision of the CIT (Appeals).”
In the light of the above decision and considering the settled position of law, we direct the A.O. to allow the exemption u/s 54F in respect of all the flats received by the assessee as consideration on entering into the joint development agreement. Accordingly, grounds raised by the assessee are allowed.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 31st August, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 31st August, 2018 OKK
Copy to:-
1) Santosh Kiron Aedma, H.No.2-1-240, Flat No.502, Lahari Rajashri Apartments, Nallakunta, Hyderabad-500 044. 2) Income Tax Officer, Ward-4(3), Income Tax Towers, A.C. Guards, Hyderabad. 3) The CIT(A)-1, Hyderabad 4) The Pr. CIT-1, Hyderabad 5) The DR, ITAT, Hyderabad 6) Guard File