SRI NEKKUNDI MUNIREDDY THULASIRAM,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4(3)(1), BANGALORE

The assessee is an individual. For the AY 2012-13, he filed a return of income declaring an income of Rs.33,94,370 which was income from house property. The AO noticed that during the previous year, the assessee sold property being Flat B-105, Habitat Splendour, for a sale

The AO denied the benefit of deduction u/s. 54 of the Act and brought the entire sale consideration of Rs.52 lakhs received on transfer of the property to tax as long term capital gain.

Before the CIT(A), the assessee submitted that as early as 1.7.2013, the assessee obtained plan sanction for construction of residential house over the site from BBMP which he had purchased by utilizing the sale consideration on sale of the flat. The assessee submitted that for various reasons, construction of the residential house could not be proceeded with, but since the entire sale consideration was invested in the purchase of the site, assessee should be entitled to exemption u/s. 54 of the Act. This plea was rejected by the CIT(A) for the reason that the assessee did not satisfy the condition that construction should be completed within a period of three years from the date of sale of the flat and this condition was mandatory u/s. 54 of the Act to claim exemption.

The next submission made by the assessee before the CIT(A) was that the AO was not justified in bringing to tax the entire sale consideration on sale of the flat and that u/s. 48 of the Act, capital gain has to be computed by reducing from the full value of construction received on transfer, cost of acquisition of the property and expenses incurred in connection with the transfer. The assessee gave the following computation of long term capital gain before the CIT(A):-

Before the CIT(Appeals), the assessee has also given an alternative computation of long term capital gain by separately working out the cost of land and cost of super built-up area separately and arriving at a long term capital gain of NIL and the said computation is as follows:-

The CIT(Appeals) noticed that as per the first computation of capital gain filed by the assessee which was supported by a report of registered valuer, the value of the built-up area was taken as Rs.1200 per sft. He was of the view that Rs.1200 per sft. was on the higher side. He directed the AO to consider the comparable sale deeds or comparable joint development agreements of the corresponding year and if that is not possible, adopted the guideline value as published by the State Govt. for arriving at the cost of construction in Bangalore for the FY 2005-06.

As far as revised computation of capital gain filed by the assessee before the CIT(Appeals) in which Nil capital gain was computed, the CIT(A) has not given any specific finding, but directed the AO to compute the long

The grounds of appeal raised by the assessee are as follows:-

We have heard the rival submissions. As far as exemption claimed by the assessee u/s. 54 is concerned, the assessee has not satisfied the condition that the construction of new asset has to be complied within a period of 3 years from the date of transfer. This condition having not been satisfied in the case of assessee, the deduction u/s. 54 of the Act was rightly denied by the revenue authorities. Even today, there has been no construction on the site purchased by the assessee and therefore the action of the revenue authorities in denying the benefit of exemption u/s. 54 of the Act is upheld.

We are of the view that the long term capital gain on sale of the flat has to be computed in accordance with the provisions of section 48 of the Act. The facts which we notice in this regard from the statements filed by the assessee before the CIT(Appeals) is that the flat which was sold by the assessee during the previous year was acquired by the assessee under a joint development agreement dated 7.3.2003. The assessee had 1/3rd share in 2 acres 35 guntas which was given to M/s. Gopalan Enterprises under a joint development agreement and supplementary agreement dated 7.3.2004 and 27.4.2004 respectively. The assessee got 13 flats and 4 car parks from the developer. The assessee retained 7708 sft. and undivided interest in land.

The assessee worked out the cost of land and the cost of super built-up area of Flat B 105 that was got under the joint development agreement and which was sold during the previous year in the following manner:-

Extent of land transferred to the developer. 111,367

Fair Market Value (FMV) of the above @ Rs.500 per sft. 55,683,500

Cost per Sft of the Super built-up area, being the exchange value 2,930”

As far as the aforesaid computation of long term capital gain is concerned, the same is a second computation of the long term capital gain filed by the assessee before the CIT(A) and this is not supported by a report of any registered valuer. The flat that was sold by the assessee comprises of undivided share of interest in the land of 472 sft. and the built-

In the result, the appeal by the assessee is treated as partly allowed.