ACIT, CIRCLE-4(1), HYDERABAD, HYDERABAD vs. FAZLUNNISA BEGUM, HYDERABAD, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B” BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. No.66/Hyd/2017 Assessment Year: 2012-2013 Asst. Commissioner of vs. Smt. Fazlunnisa Begum, Income Tax, Hyderabad. Circle-4(1), PAN: ABJPF 0159 M Hyderabad. (Appellant) (Respondent) For Assessee: Smt. Dr. Divya K.J - DR For Revenue : Shri P. Vinod Date of Hearing : 09.01.2018 Date of Pronouncement : 09.01.2018 ORDER PER D. MANMOHAN, VP. This appeal by the Revenue is directed against the order passed by Ld. CIT(A)-8, Hyderabad and it pertains to A.Y. 2012-2013.

purchase of one residential flat only and accordingly re-worked out the capital gains.

54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.— (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45: (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) the assessee, (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset ; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset ; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head ‘income from house property’ 9. It is relevant to note herein that an amendment was made to the above-said provision with regard to the word 'a' by the Finance (No.2) Act, 2014, which will come into effect from 01.04.2015. The said amendment reads as follows: "32a. Words “constructed, one residential house in India” shall be substituted for “constructed, a residential house” by the Finance (No.2) Act, 2014, with effect from 01.04.2015." 10. The above-said amendment to Section 54F of the Income Tax Act, which will come into effect only from 01.04.2015, makes it very clear that the benefit of Section 54F of the Income Tax Act will be applicable to constructed, one residential house in India and that clarifies the situation in the present case, i.e, post amendment, viz., from 01.04.2015, the benefit of Section 54F will be applicable to one residential house in India. Prior to the said amendment, it is clear that a residential house would include multiple flats/residential units as in the present case where the assessee has got five residential flats. We may also mention here that all the Authorities below have clearly understood that the agreement signed by the assessee with M/s. Mount Housing Infrastructure Ltd., is that the assessee will receive 43.75% of the built-up area after development, which is construed as one block, which may be one or more flats. In that view of

the matter what was before the Assessing Officer is only equivalent of 56.25% of land transferred, equivalent to 43.75% of built up area received by the assessee. This built up area got translated into five flats. Hence, we are of the opinion that the transaction in this case was not with regard to the number of flats but with regard to the percentage of the built up area, vis-a-vis, the Undivided Share of Land. 11. In similar circumstances, this Court, by order dated 04.01.2012 in T.C.(A)No.656 of 2005 held as follows: "The above provision refers to a residential house meaning thereby that even if there are four different flats and if it is considered for the property assessed as one unit and one door number is given, it should be construed as a residential unit, namely, one unit. In that sense, the said provision is available to the assessee." 12. In the decision reported in (2012) 75 DTR 56 (Dr.(Smt.) P.K.Vasanthi Rangarajan, this Court, while dealing with the benefit of exemption under Section 54F, followed the above-said decision of this Court in T.C.(A)No.656 of 2005 and granted the benefit to the assessee under Section 54F of the Income Tax Act on the investment made in the four flats. 13. Hence, the above-said decisions of this Court make it clear that the property should be assessed as one unit, even though different flats are available……” 8. The jurisdictional High Court in the case of CIT V/s. Vittal Krishna Conjeevaram (supra), following the decision in the case of CIT V/s. Syed Ali Adil (supra) and the decision of the Delhi High Court in the case of CIT V/s.Gita Duggal (supra) dismissed the appeal of the Revenue, confirming the order of the ITAT. The above judgments lay down a principle that merely because a residential house consists of several independent residential units, deduction under S.54/S.54F could not disallowed. Respectfully following the decision of the Hon'ble jurisdictional High Court in the case of CIT V/s. Syed Ali Adil (supra) as approved in the case of CIT V/s. Vittal Krishna Conjeevaram (supra) and the principles laid down by the Hon'ble High Court of Delhi and Madras discussed above, we have no option than to confirm the order of the CIT(A), which is in consonance with the principles laid down on the issue in dispute. 9. We are also aware that the Hon'ble Punjab and Haryana High Court in the case of Pawan Arya V/s.CIT (supra) has not approved the above proposition, but the binding decisions of the jurisdictional High Court in the cases discussed above are in favour of the assessee, and therefore, the contentions raised by the Revenue in this appeal cannot be accepted.”

or a common entrance etc., whereas in the instant case, there are multiple residential units and if the phrase “residential use” is properly appreciated, the present assessee is not entitled to exemption in respect of all the 8 flats. The written submissions of the Ld DR are extracted as under:- The sole issue in the present case is whether the assessee is eligible for deduction u/s 54 of the IT Act for the value of one residential unit as held by the A.O. or for the value of the 8 flats as observed by the Ld. CIT(A) in his appellate order. The CIT (A) relying on D. Ananda Basappa’s case (309 ITR 329) and few other decisions held that the assessee is eligible for deduction in respect of all 8 units as claimed by the assessee. The decision of CIT (A) cannot be accepted for the following reasons: (i) A plain reading of section 54 makes it clear that deduction is allowable if the capital gain arises from the transfer of any Long Term Capital Asset being buildings or lands appurtenant thereto and being a residential house and the assessee within a period of one year before or two years after the date of transfer purchased or has within a period of three years after the date of transfer constructed a residential house, the capital gains shall be dealt with in accordance with…. Thus, the deduction is admissible from capital gains in respect of purchase / construction of a residential house and not multiple independent – residential units. In the instant case, each of the eight flats received by the assessee towards her share is independent and self-contained in all respects. A simple test is such case is whether all eight flats can be combined and sold as single residential unit. The answer is emphatic ‘No’. The indivisibility and simultaneous transferability is the criteria to decide whether it is a residential house for the purpose of deduction u/s 54. Further, as per the proviso to section 54, if the amount deposited under sub-section 2 is not utilized wholly or partly for the purpose of construction of the New Asset within the periods specified in sub- section (1), then the amount not so utilized shall be charged u/s 45 as the income of the previous year in which the period of three years from the date of transfer of the original asset expires. The use of the expression ‘the new asset’ clearly indicates that the new asset should be one indivisible unit and had the legislature intended to provided deduction u/s 54 to more than one unit holding them to be within the umbrella of ‘a residential house’ it would have used the expression ‘new assets’ before the word purchase or construction. (ii) The case law cited by the CIT (A) are not applicable to the assessee’s case for the reason that in those cases two flats are adjacent to each other and can be combined or merged into one unit with a common meeting point etc. For instance, in the case of Syed Ali Adil (352 ITR 418), the flats are situated side by side and the builder has affected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds and in that context Hon’ble Andhra Pradesh High Court held that the fact that the residential house consisted of several independent units could not be an impediment for granting relief under section 54. In the cases referred by the Ld. CIT(A), by and large all the units purchased by the

assessee on the disposal of original asset had some common thread – either there was a common kitchen or they were jointed together or families of the assessee were living in all of them or had a common ratio card, ie some common point, which was keeping all the units together as one residential house. However, in the present case, no material is furnished by the assessee to show that there was common point in the 8 units located in different floors to constitute “a residential house”. (iii) In this context reference can be made to the unreported decision of AP High Court in the case of Sri K. Siva Reddy (LR) vs. ITO in ITA No. 76 of 2000 dated 11.08.2006 wherein it is held ‘the requirement under section 54F of the Act is that the assessee should have constructed a residential house 24 flats would not have been shown authorities on the basis of which this court conclude that the assessee was entitled to reliefs under section 54F of the Act as he had constructed 24 flats from the consideration received by selling the long term capital asset. Therefore, the questions are answered against the assessee.” (iv) Reliance is also placed in the decision of ITAT, Chennai in the case of Shri A. Kodanda Rami Reddy vs. ITO in ITA No. 1865/Mds/2012 wherein it was held that assessee cannot claim deduction u/s 54 on two disparately placed properties. (iv) Thus, in context of deduction u/s 54F it cannot be said that all the 8 units received by the assessee from the developer constitute single transferable unit. This legal position was made clear by the Finance (No.2) Act, 2014, and in the Memorandum to the Finance Bill (No.2) 2014, where it is clearly mentioned that the benefit was intended for investment in one residential house within India. (v) In the light of the foregoing, as observed by the A.O., deduction u/s 54 is not allowable on the aggregate value of eight units and it was rightly restricted to the value of one unit in the assessment order. Hence, the order of CIT (A) may be set aside and the order of the A.O. be restored.” 8. We have considered the rival submissions and perused the record. The limited issue for consideration is as to whether different flats allotted to the assessee are meant for residential use of the assessee and if such test is fulfilled, assessee is entitled to the benefit of exemption u/s 54 of the Act, particularly for the year under consideration. Ld. CIT(A) was of the opinion that the 8 flats allotted to the assessee are meant for utilisation of the joint family comprising of 3 sons and 4 daughters. Nothing was placed on record by the Ld DR to contradict the findings of the Ld. CIT(A). Since the finding of the Ld. CIT(A) was not contradicted by placing any material on record, we are unable to appreciate the contention of the Revenue particularly in view of the decision of Hon’ble jurisdictional High Court (supra) as well as the recent decision of the ITAT, Hyderabad Bench (supra). Having

regard to the factual matrix of the case, we uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the Revenue. Pronounced accordingly in the open court on 09th January, 2018.

Sd/- Sd/- (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated: 09th January, 2018.

OKK, Sr.PS Copy to