Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA No.942/Bang/2017 Assessment Year : 2010-11 Shri. K. Babu (HUF), Vs. The Income Tax Officer, No.57/2, Dollars Colony, Ward – 7(2)(3), 1st Cross, 2nd Main, 4th Phase, Bengaluru. J P Nagar, Bengaluru – 560 078. PAN: AAGGK 0809 G APPELLANT RESPONDENT Appellant by : Shri. V. Narendra Sharma, Advocate Respondent by : Shri. Kannan Narayanan, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 19.11.2020 Date of Pronouncement : 19.11.2020 O R D E R Per N.V. Vasudevan, Vice President
This is an appeal by the assessee against the order dated 24.01.2017 of CIT(A) – 7, Bengaluru, relating to Assessment Year 2010-11.
The assessee is an HUF. The assessee together with Shri. R Govinda Naidu and Shri. R. Bhaskar Naidu were co-owners of property measuring an extent of 1 acre and 32 guntas in Bilakahalli Village, Begur Hobli, Bangalore South Taluk, Bangalore (hereinafter referred to as ‘the ‘property’. The assessee and the other 2 co-owners entered into a Joint Development Agreement (JDA) dated 21.01.2020 with M/s. S. N. Raj Builders and Developers. As per the development agreement, the assessee and the other 2 co-owners agreed to convey 54.40% undivided share of right, title and interest in the property to the developer and the developer agreed to
ITA No. 942/Bang/2017 Page 2 of 12
construct and deliver to the assessee and the other 2 co-owners 42.60% of the total built up area of flats that were not constructed over the property together with proportionate common amenities, car parking slots, etc.
There was also a supplementary agreement whereby the assessee and the other 2 co-owners of the property and the developer and another person by name M. K. Konappa who also owned adjacent property. This supplementary agreement is dated 07.02.2010. By this agreement, certain terms were agreed between the assessee and the other 2 co-owners of the property and the third party M. K. Konappa.
There was another partition deed dated 02.04.2013 between the assessee and the other 2 co-owners of the property whereby the share of built up area that would be allotted to the assessee’s share, was identified as follows:
Flat BLOCK FLOORS AREA – sq.ft Nos C-102 Congo First 2350 C-1203 Congo Twelfth 3300 C-1501 Congo Fifteenth 2300 H-203 Huron Second 3200 H-1401 Huron Fourteenth 2250 H-902 Huron Ninth 2300 H-706 Huron Seventh 2250 H-1602 Huron Sixteenth 5225 Seventeenth /1702 H-504 Huron Fifth 3000 T-402 Tahoe Fourth 2250 Total 28,425 sq.ft.
The assessee filed return of income for Assessment Year 2010-11 wherein the assessee did not offer any long term capital gain (LTCG) on entering into joint venture agreement in respect of property. The AO issued a notice under section 148 of the Income Tax Act, 1961 (‘the Act’) dated 24.01.2014 on the basis of the information regarding the joint development agreement dated 21.01.2020. In the proceedings pursuant to the issue of
ITA No. 942/Bang/2017 Page 3 of 12
notice under section 148 of the Act, the question was as to whether there is a transfer of the property within the meaning of section 2(47)(v) of the Act. The plea of the assessee was that it is only on delivery of the constructed area by the developer in all respects that a transfer would take place and since no such delivery of built up area had taken place during the previous year relating to Assessment Year 2010-11, the assessee claimed that there was no transfer of the property and therefore no capital gain is exigible to tax in Assessment Year 2010-11.
The AO however was of the view that possession of the property had been delivered to the developer and therefore there was a transfer of the property on the signing of the development agreement dated 21.01.2010 and therefore capital gain was exigible to tax in Assessment Year 2010-11. For the sake of completeness of facts, we may also extract the relevant clause of the agreement dated 21.01.2010 regarding possession and the same is as follows:
“3. LICENCE : The Owners do hereby irrevocably permit the Developers to enter upon the Schedule Property for development thereof and accordingly, have permitted the Developers to enter upon the Schedule Property for the purpose of commencement of development works. The Developers shall be entitled to commence and complpte development of the Schedule Property along with the three adjacent properties referred to above. By mutual consent other adjacent properties may also be merged for development, by the Developers. The owners do hereby authorise and empower the Developers to develop the Schedule Property in terms of this agreement and the owners shall not revoke the rights so granted till completion of the project/development and sale in favour of the prospective Purchaser/s, in terms of this agreement. Provided nothing contained herein shall be deemed to mean that the Owners have handed over the possession of the Schedule Property in part performance of any contract as stipulated in Sec. 53-A of the Transfer of Properties Act, 1882 and or under section 2(47) of Income Tax Act, 1961.
ITA No. 942/Bang/2017 Page 4 of 12
REGARDING POSSESSION The legal possession of the Schedule Property shall be with the OWNERS and the DEVELOPERS (in the capacity of licensee) have been duly authorised by the OWNERS to commence the development and construction work in the Schedule Property, getting the Schedule Property duly surveyed, arranging for spot inspection by competent Authorities, for construction and development, for fixing Hoardings and Advertisement Boards and to carry on such other activities for developing and sale of the Schedule Property in terms of this agreement.”
The AO also made a reference to the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. T. K. Dayalu 202 taxman 531 (Karn) wherein it was held that the date of transfer would be the date on which possession is handed over to the developer under Joint Development Agreement (JDA). Thereafter, the AO proceeded to compute the capital gain on sale of the property as follows:
The Long Term Capital gains worked out as under:
Market value of the super built up area 2,59,45,113/- calculated Less: Indexed cost of land surrendered 81,65,266/- Long Term Capital Gains arrived 1,77,79,850/-
Before the AO, the assessee claimed deduction under section 54F of the Act only in respect of 1 of the 10 flats that he had received as his share of built up area under the JDA. The AO had allowed deduction under section 54F of the Act in respect of 1 flat.
Before CIT(A), the assessee again reiterated its stand that there was no transfer of the property during the previous year relevant to Assessment Year 2010-11 but that plea was rejected by the CIT(A) on the same reasoning as was given by the AO.
ITA No. 942/Bang/2017 Page 5 of 12
Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. The Registry has raised an objection that the appeal has been filed belatedly by 128 days. We, however, find that the objection of the Registry regarding delay in filing the appeal is not correct. The impugned order of the CIT(A) was passed on 24.01.2017 and the same was served on the assessee on 28.02.2017, thus the period of 60 days for filing the appeal before the Tribunal ends on 27.04.2017 and the appeal had been filed before the Tribunal on 27.04.2017, hence, there is no delay in filing the appeal by the assessee.
The Assessee has filed an application dated 3.8.2019 seeking to raise an additional ground of appeal. The additional grounds sought to be raised by the assessee reads as follows:
“1. The learned authorities below ought to have appreciated that consent cannot confer jurisdiction and in accordance with the Board Circular and several case laws, the learned authorities below ought to have granted relief of exemption und& section 54F of the Act on the entire units of apartment received by the appellant in lieu of Development Agreement, as against the claim of exemption under section 54F of the Act by the appellant of only one residential unit of apartment, on the facts and circumstances of the case.”
The Additional ground of appeal sought to be raised by the assessee is a legal issue and can be decided on the basis of the facts already available on record. Keeping in view the decision of Hon’ble Supreme Court in the case of NTPC Ltd., Vs. CIT 229 ITR 383 (SC) wherein it was held that any question of law which can be decided on the basis of the facts already available on record should be permitted to be raised at any point of time, we admit the additional grounds of appeal for adjudication.
As far as the adjudication of additional grounds raised by the assessee is concerned, the material facts has already been noticed by us in the earlier paragraph. The assessee received 10 flats as his share of built up area under the JDA. The assessee claimed deduction only in respect of 1 of the
ITA No. 942/Bang/2017 Page 6 of 12
10 flats so received. By way of the additional ground of appeal, the Assessee seeks to claim deduction u/s.54F of the Act on all the 10 flats. The question whether the assessee can claim deduction in respect of the entire 10 flats under section 54F of the Act has been subject matter of several judicial pronouncements. These decisions have been considered by this Tribunal in the case of Smt. Nethravathi Vs. ITO in ITA No.2630/Bang/2017 for Assessment Year 2014-15, order dated 25.04.2018. In the aforesaid case, the assessee entered into JDA and received 13 flats as her share of built up area. The assessee claimed deduction under section 54F of all the 13 residential flats which she got as her share of built up area under JDA. The claim of the assessee was rejected on the basis that under section 54F of the Act, the expression used is “a residential house”. The provision of section 54F is as follows:
“54F. Profit on sale of property used for residence:- (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 a long-term capital asset, not being a residential house,(hereinafter referred to as the original asset), and the assessee has within a period of one year before or 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 (hereinafter in this section referred to as the new asset), the cpital gain shall be dealt with in accordance with the following provisions of this section that is to say,- ........." "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
ITA No. 942/Bang/2017 Page 7 of 12
(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".] 'Provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the original asset, or purchases, within the period of one year after such date, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset.'
The aforesaid provision was examined by the Hon’ble Karnataka High Court in the case of CIT Vs. K. G. Rukminiamma 331 ITR 221 (Karn). In the context of section 54F which is in para materia under section 54F of the Act, the Hon’ble High Court held as follows:
“8. For a proper appreciation of the aforesaid contention, it is necessary to have a careful look at Section 54 of the income Tax Act, which reads as under: 54. Profit on sale of property used for residence:- (1) Subject to the provisions of sub-section where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being. buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date air which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions 01 this section, that is to say- (i) ........."
ITA No. 942/Bang/2017 Page 8 of 12
A reading of the aforesaid provision makes it very clear that the property sold is referred to as original asset in the section. That original asset in described as buildings or lands appurtenant thereto and being a residential house. Therefore, it is not mere a residential house." ' The residential house may' include buildings or lands appurtenant thereto. The stress is on the use to which the property is put to. Only when that asset was used as a residential house, which may consist of buildings or lands appurtenant thereto, the income derived from the sale of such a residential house is chargeable under the head 'income from house property." If the assessee has within a period of one year before or 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, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the aforesaid provisions. In this part of the section also, the words "a residential house" is again used. The said residential house necessarily has to include buildings or lands appurtenant thereto. It cannot be construed as one residential house in this context it is useful to refer to Section 13 of the General Clauses Act, 1987 which reads as under:- "13. Gender and number. - In all Central Acts and Regulations, unless there is anything repugnant in the subject or context-- (1) Words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa" 10. The context in which the expression 'a residential house' is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house, if that was the intention, they would have used the word "one." As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as "a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, winch also should be "a residential house." Therefore the letter 'a' in the context it is used should not be construed as meaning "singular." But, being an indefinite article, he said expression should be read iii consonance with the other words 'buildings' and 'lands' and, therefore, the singular 'a residential house also permits use of plural by virtue of Section 13(2) of the General Clauses Act. This is the view which is taken by this court in the aforesaid Anand Basappa's case in IT.A.No. 113/2004, disposed of on 20.9.2008.
ITA No. 942/Bang/2017 Page 9 of 12
We, therefore, do not see any merit in the submission of the learned counsel for the revenue. 12. In the instant case, the facts are not in dispute. On a site measuring 30' x 110', the assessee had residential premises. Under a joint development agreement, she gave that property to a builder for putting iii. flats. Under the agreement eight flats are to be put up in that property and four flats representing 48% is the share of the assessee and the remaining 52% representing another four flats was the share of the builder. So the consideration for selling 52% of the site is four flats representing 48°/o. All the four flats are situate in a residential building. These four residential flats constitute a residential house" for the purpose of Section 54. Pro-it on sale of property is used for residence. The four residential flats cannot be construed as four residential houses for the purpose of Section 54. It has to be construed only as "a residential house" and the assessee is entitled to the benefit accordingly. 13. In that view of the matter, the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay capital gain tax as the case squarely falls under Section 54 of the income Tax Act. Hence, we do not see any substantial question of law arising for consideration in this appeal. Accordingly, the appeal is dismissed."
Learned Counsel for the assessee placing reliance on the aforesaid decision and the decision of the ITAT Bangalore Bench in the case of Smt.Netravati (supra), submitted that if the assessee is allowed deduction under section 54F of the Act on all the 10 flats received under the JDA then the question regarding year of taxability of LTCG would become academic because there would remain no taxable long term capital gain. Learned DR placed reliance on the decision of the AO and CIT(A).
We have considered 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 (supra) 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
ITA No. 942/Bang/2017 Page 10 of 12
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. The Hon'ble Madras High Court in the case of CIT Vs. Smt. V.R Karpagam Tax Appeal No.301 of 2014 judgment dated 18/8/2014 in a case where the facts were similar to the case of the assessee also took similar view. 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, 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 ITA No.2630/B/17 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
ITA No. 942/Bang/2017 Page 11 of 12
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). 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 if the deduction is allowed then there would be no capital gain that would remain which is chargeable to tax in the hands of the assessee. We hold and direct accordingly and allow the appeal of the Assessee.
In view of the aforesaid conclusion, we are of the view that there is no necessity to decide the issue with regard to the year of taxability of LTCG.
In the result, appeal of the assessee is partly allowed.
Pronounced in the open court on this 19th day of November, 2020.
Sd/- Sd/- (CHANDRA POOJARI) (N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT Bangalore, Dated, the 19th November, 2020. /NS/*
ITA No. 942/Bang/2017 Page 12 of 12
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar ITAT, Bangalore.