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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
This appeal is filed against the order dated 16/11/2016 passed by CIT(A)-43, New Delhi for Assessment Year 2013-14 by the revenue.
The grounds of appeal are as under:-
“1. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in holding that the subject matter of transfer was residential property, when the Collaboration Agreement itself mandated the demolition of the existing structure at the expense of the buyer himself, thus leaving no residential property in existence.
2. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in not appreciating the fact that as per the Collaboration Agreement what was sold was not any residential property, but at best only the right to retain the ‘malba’ of the old structure after demolition.
Whether on the facts and in the circumstances of the case, the ‘malba’ of the demolished structure qualifies as a long-term capital asset and a residential house within the meaning of section 54 of the Act.
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in not appreciating the fact that even the entire second floor and the entire third floor sold by the assessee to the buyer builder in the new construction along with the proportionate share in the common areas and the plot of land would not qualify as long-term capital asset within the meaning of section 54 of the Act.
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in allowing the claim of the assessee under the provisions of section 54 of the Act by completely overlooking that the case needed to be examined under the provisions of section 54F of the Act, as what was transferred was the proportionate right in the land, a long-term capital asset along with the right to ‘malba’, and the two newly constructed floors, which are short-term capital assets.
6. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of or before the hearing of the appeal.”
3. The assessee is non-resident Indian and declared return of income in which a long term capital gain of Rs. 1,84,67,418/- was declared on a transfer of residential property bearing no. W-31, Greater Kailash-1, New Delhi admeasuring 500 sq. yds. Which she had purchased from her brother 09.08.2007 after claiming an exemption of Rs. 3,41,25,000/- u/s 54 of the Act on the same. On 18.04.2012, the assessee entered into a collaboration agreement with a builder, M/s. Pragati Builders & Promoters in respect of aforesaid property. As per the collaboration agreement, the assessee would give a vacant possession of the property free from all encumbrances to allow the builder to demolish the existing structure and construct a building consisting of basement, stilt, ground floor, first floor, second floor and third floor with terrace. The entire cost was to be met by the builder from its own sources. The builder in turn would also pay to the assessee Rs. 5,50,00,000/- and retained entire second floor, entire third floor with terrace , proportionate share in the entire stilt area for car parking, use of common areas, facilities and services such as driveway, lift, use of staircase etc, proportionate undivided indivisible and impartible ownership rights in the plot of land measuring 500 sq. yrs. The assessing officer completed the assessment u/s 143(3) vide order dated 18.03.2016. The Assessing Officer held that the property that was transferred by the assessee to the builder under collaboration agreement dated 18.04.2012 was not a residential property, but the rights on a piece of land. Hence, the assessee was not eligible for exemption claimed u/s 54 as per the assessing officer. The assessing officer further held that assessee was also not eligible for exemption u/s 54F since she did not satisfy the conditions provided under proviso at (a) (ii) and (a) (iii) of sub section (1) of section 54F.
4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT(A) erred in holding that the subject matter of transfer was residential property, when the Collaboration Agreement itself mandated the demolition of the existing structure at the expense of the buyer himself, thus leaving no residential property in existence. The Ld. DR submitted that the CIT(A) failed to appreciate the fact that as per the Collaboration Agreement what was sold was not any residential property, but at best only the right to retain the ‘malba’ of the old structure after demolition. The Ld. DR submitted that the ‘malba’ of the demolished structure qualifies as a long-term capital asset and a residential house within the meaning of section 54 of the Act. The Ld. DR further submitted that the CIT(A) failed to appreciate the fact that even the entire second floor and the entire third floor sold by the assessee to the buyer builder in the new construction along with the proportionate share in the common areas and the plot of land would not qualify as long-term capital asset within the meaning of section 54 of the Act. The Ld. DR submitted that the CIT(A) has erred in allowing the claim of the assessee under the provisions of section 54 of the Act by completely overlooking that the case needed to be examined under the provisions of section 54F of the Act, as what was transferred was the proportionate right in the land, a long-term capital asset along with the right to ‘malba’, and the two newly constructed floors, which are short-term capital assets.
The Ld. AR submitted that the only dispute in the present appeal as relates to ground no. 1, 2 and 3 is whether the capital asset that was transferred to the builder under collaboration agreement dated 18.04.2012 was the residential property of the rights on a piece of land. The Ld. AR submitted that the Assessing Officer at para 3.1 of the assessment order mentioned that the assessee was the owner of the plot bearing no. 31, admeasuring 500 sq yds and the structure (residential building) thereon in block W of Greater Kailash, Delhi – 110048. The Ld. AR submitted that the assessee purchased independent residential house consisting of ground floor, first floor and second floor on 09.08.2007 from her brother. The type of property is mentioned as residential at ‘Residential’ at page no. 6 of the purchase deed. Clause 2 at page no. 6 of the purchased deed mentioned that in consideration of Rs. 1,60,00,000/- received by the vendor from the vendee, the vendor hereby sales, transfers, conveys and assigns the free hold property i.e. building together with whole of its structure, roof and land beneath the same, built on residential plot of land bearing no. 31 in Block W, area measuring 500 sq. yds. It is an undisputed fact that the subject property was being used as residential house by the assessee from the period of its purchase on 09.08.2007 to the date of handing over its vacant possession to the builder for re-development and construction vide collaboration agreement dated 18.04.2012. The ld. AR further submitted that from the reading of the Clause of collaboration agreement it can be seen that what was transferred / handed over to the builder was the existing structure of the residential property. The builder demolished and redeveloped the old residential property into new residential building consisting of ground floor, 1st floor, second and third floor. What was lost was the entire existing structure it comprises residential house. The Ld. AR relied upon the decision of Hon’ble Karnataka High Court in case of Ved Prakash Rakhra [2013] 256 CTR 285 as well as the Jurisdictional High Court in the case of CIT vs. Gita Duggal [2013] 357 ITR 153 and CIT vs. Smt. K.G. Rukminiamma 331 ITR 211 (KAR, H.C.). the Ld. AR has given an alternative contention that since the share of the assessee and the builder in the newly constructed residential property was fixed and certain terms were defined by the collaboration agreement alternatively it can be said that the assessee was permanently dispossessed of 2nd floor with terrace in old residential building as the builder got second floor and third floor in the new residential property, in exchange of basement, ground floor and first floor in the new residential building. By virtue of collaboration agreement, the assessee permanently loss the share beyond the 1st floor in the old residential property i.e. from 2nd floor onwards. And in fact received the share up to the 1st floor in the newly constructed residential building. So in real sense, the assessee was permanently and for all time dis- possessed of 2nd floor onwards in old and new residential property. Thus, the assessee has rightly claimed exemption u/s 54.
We have heard both the parties and perused all the relevant material available on record. From the records it can be seen that it is an undisputed fact that the subject property was being used as residential house by the assessee from the period of its purchase on 09.08.2007 to the date of handing over its vacant possession to the builder for re-development and construction vide collaboration agreement dated 18.04.2012. From the Clause of collaboration agreement, it can be seen that what was transferred / handed over to the builder was the existing structure of the residential property. The builder demolished and redeveloped the old residential property into new residential building consisting of ground floor, 1st floor, second and third floor. Thus, the assessee lost all rights upon the entire existing structure which comprises residential house. The reliance upon the decision of Hon’ble Karnataka High Court in case of Ved Prakash Rakhra (supra) as well as Gita Duggal (supra) and CIT vs. Smt. K.G. Rukminiamma (supra) are apt in present case. By virtue of collaboration agreement, the assessee permanently lost the share beyond the 1st floor in the old residential property i.e. from 2nd floor onwards and in fact received the share up to the 1st floor in the newly constructed residential building. So the assessee permanently dis-possessed of 2nd floor onwards in old and new residential property. Thus, the assessee has rightly claimed exemption u/s 54. As per the provisions of Section 54, the assessee purchased residential property. The said property was held by the assessee for more than three years from the date of acquisition and it is a case of long term capital gain on transfer of residential property. The said residential property was subject matter of Collaboration Agreement dated 18.04.2012 under which the possession was transferred to the developer and the rights of the purchased property were lost. The consideration received by the assessee under Collaboration Agreement was Rs. 5.50 cores and also the cost of construction of the area of building coming to the share of the assessee which was comprising of area in basement, ground floor and first floor and the said amount was to be treated as sale consideration on account of transfer of the property by the assessee to the builder under Collaboration Agreement. The gain arising on the said transfer was utilized for purchase of residential property at Greater Kailash-III, New Delhi as per the sale registration dated 09.07.2013. Thus the new residential property was acquired within two years from the date of transfer of the said property i.e. date of collaboration on 18.04.2012. Thus, there is no need to interfere with the findings of the CIT(A). The details have been given by the assessee during the Assessment Proceedings. Thus, the Assessing Officer was not correct in disallowing the claim u/s 54 of the Income Tax Act, 1961. The appeal of the revenue is dismissed.