SRI RAJA REDDY KIRAN,BANGALORE vs. THE INCOME TAX OFFICER WARD-1(2)(3), BANGALORE

Per Jason P Boaz, Accountant Member

2.1 The assessee, an individual, earning income from house property, filed his return of income for assessment year 2006-07 on 11.07.2006 admitting income of Rs.3,08,355/-. In the year under consideration i.e., on 05.04.2005, the assessee and four other co-owners had entered into a Joint Development Agreement (JDA) with Page 2 of 7 M/s. Akruti Developers in respect of a property at No.14, Murphy Road, Ulsoor; whereby the assessee and the developer were to each have 50% in the undivided share in the said property/land and the assessee was to receive two apartments in the Building to be put up. The assessee had not declared capital gains on the said transaction for Assessment Year 2006-07. In these circumstances, the Assessing Officer (AO) initiated proceedings u/s 147 of the Income Tax Act, 1961 (in short ‘the Act’) as he was of the view that since the above transaction comes within the ambit of “transfer” as laid out in section 2(47)(v) of the Act and the assessee had not declared capital gains thereon; income of the assessee liable to tax had escaped assessment for Assessment Year 2006-07. After recording reasons in this regard, the AO issued notice u/s 148 of the Act dated 23.02.2012 to the assessee. The assessee participated in the reassessment proceedings and the AO concluded the assessment u/s 143(3) r.w.s. 147 of the Act vide order dated 25.03.2013, wherein the capital gains arising on account of JDA dated 30.01.2006 was determined at Rs.16,12,844/-. The assessee’s claim for exemption u/s 54F of the Act in respect of the capital gains was rejected by the AO.

2.2 Aggrieved by the order of assessment dated 25.03.2013 for Assessment Year 2006-07, the assessee filed an appeal before the CIT(A). The assessee’s appeal was dismissed by CIT(A) vide order dated 31.10.2018. While dismissing the assessee’s appeal the CIT(A) held that the subsequent amendment to section 54F of the Act operated retrospectively and since the assessee had received more than one flat, as per the JDA, the denial of exemption u/s 54F of the Act was in order.

3. The assessee, being aggrieved by the order of CIT(A)-2, Bangalore dated 31.10.2018 for Assessment Year 2006-07 has preferred this appeal before the Tribunal; wherein he has raised the following grounds: 1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

Page 3 of 7 2. The learned CIT[A] is not justified in holding that the assessment of capital gains on the joint development of the appellant's share in the ancestral property in the hands of the appellant in Individual capacity was correct without appreciating that the said property subject matter of the development belonged to the appellant's joint family and hence, the assessment made in the hands of the appellant in individual capacity ought to have been vacated.

4. Without prejudice to the above, the learned CIT[A] is not justified in holding that that there was a transfer of the undivided interest in land in favour of the Developer on the execution of the joint development agreement on 07/04/2005 during the year under appeal under the facts and in the circumstances of the appellant's case.

6. The learned CIT[A] ought to have appreciated that the appellant was entitled to benefit of exemption u/s. 54 of the Act in respect of the 2 residential apartments received from the Developer on the Joint development as the original asset subject matter of joint development was a residential house and hence, there was no liability to capital gains tax for the year under appeal considering the extent of reinvestment made by the appellant.

7. Without prejudice to the above, the learned CIT[A] ought to have appreciated that to have allowed the exemption u/s. 54F of the Act, in respect of the 2 residential apartments received from the Developer on the Joint development and hence, there was no liability to capital gains tax for the year under appeal even from this angle of the matter.

Page 4 of 7 8. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

5. Ground Nos. 6 and 7 – Claim of Exemption u/s 54F 5.1 The learned AR for the assessee was heard in support of the grounds raised on this issue (supra). According to the learned AR, the assessee along with 4 other persons entered into a JDA with M/s. Akruthi Developers on 07.04.2005 for development of land No.14/1, Murphy Road, Ulsoor, Bangalore – 560 008. As per the terms thereof, the assessee was entitled to 2 residential flats in lieu of his share in the transfer of 50% of the undivided share of land to the Developer, for which the assessee was entitled to exemption u/s 54F of the Act. The learned AR submits that the CIT(A)’s action in holding that the assessee is not entitled for the claim of exemption u/s 54F of the Act, was erroneous as he failed to follow the binding decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Smt. K. G. Rukminiamma (2011) 331 ITR 211 (Kar). The learned AR contends that the CIT(A) attempt to distinguish this case on facts was erroneous as he ought to have applied the principles laid down by the Hon’ble jurisdictional High Court (supra) and allowed the assessee the benefit of exemption u/s 54F of the Act for the 2 units received by him vide the JDA. It is the contention of the learned AR that in the aforesaid decision of the Hon’ble Karnataka High Court viz., Smt. K. G. Rukminiamma (supra), the Hon’ble Court has held that the meaning of “residential house” in section 54 of the Act meant that the assessee is entitled to exemption in respect of multiple units in the same residential building / complex. In this regard, reliance was also placed on the following judicial pronouncements; copies of which have been placed on record:

Page 5 of 7 (i) Shri. Sambandam Udaya Kumar in 354 ITR 389 (Kar); (ii) T. A. V. Gupta Vs. ITO in dated 24.04.2018; and (iii) Smt. Nethravathi Vs. ITO in ITA No.2630/Bang/2017 dated 25.04.2018.

5.2 Per contra, the learned DR for Revenue emphatically supported the orders of the authorities below in denying the assessee’s claim for exemption u/s 54F of the Act. According to the learned DR, the amendment in section 54F of the Act by Finance Act, 2014, w.e.f. 01.04.2015 where “one” residential house has been substituted in place of “a” residential house makes it clear that the intention of the Legislature was that the exemption u/s 54F of the Act was to be allowed only in respect of one unit and not multiple units. Therefore, the action / finding rendered by the CIT(A) cannot be faulted for denying the assessee’s claim for exemption u/s 54F of the Act.

5.3.1 I have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. These grounds are raised with regard to the assessee’s claim for exemption u/s 54F of the Act in respect of two residential units received by the assessee in lieu of entering into a JDA on 07.04.2004 with the developers - Akruthi Developers. After taking into account the factual and legal matrix of the case on hand, in my considered view, the issue before me, i.e., the assessee’s claim for exemption u/s 54/54F of the Act in respect of 2 flats/units in the same apartment building / complex is covered in favour of the assessee, both on facts and in law, by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Smt. K. G. Rukminiamma (2011) 331 ITR 211 (Kar).

5.3.2 I also find that a decision of the Co-ordinate Bench of this Tribunal in the case of Ms. Saritha Anand Shetty Vs. ACIT in dated 10.08.2018, on almost similar facts, has allowed the assessee’s claim for exemption u/s 54F of the Act on multiple units received by the assessee in the same building on Page 6 of 7 entering into a JDA with the developer. In coming to this finding, the Co-ordinate Bench of ITAT, Bangalore, followed the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Smt. K. G. Rukminiamma (supra).

5.3.3 On similar facts, a similar view was also taken by the Hon’ble Madras High Court in the case of CIT Vs. V. R. Karpagam (ITA No.301 of 2014 dated 18.08.2014). In this decision, the Hon’ble Madras High Court also held that the Amendment made to section 54F of the Act with regard to the word “a” by Finance (No.2) Act, 2014 was operative with effect from only 01.04.2015, whereby exemption for more than one flat (residential flat), is to be withdrawn. However, prior to the aforesaid amendment (supra), a residential house would include multiple flats / residential units in the same apartment building / complex.

5.3.4 The contentions of the learned DR that the Amendment to Section 54F is clarificatory in nature and has to be read retrospectively since the intention of Legislature was that exemption was to be allowed only in respect of one unit / flat is not tenable, as it goes contrary to the decision of the Hon’ble Madras High Court in the case of CIT Vs. V. R. Karpagam (supra) at para 10 thereof. In this regard, the Hon’ble Apex Court in the case of CIT Vs. Vatika Township Pvt. Ltd., (367 ITR 466) (SC) has observed that when a Legislature has given applicability from a particular date, it is impermissible for the authorities to consider the same retrospectively for earlier years.

5.3.5 In the factual and legal matrix of the case, as discussed above, and respectfully following the decisions of the Hon’ble Karnataka High Court in the case of CIT Vs. Smt. K. G. Rukminiamma (supra) and the Hon’ble Madras High Court in the case of CIT Vs. V. R. Karpagam (supra) and the other judicial pronouncements referred to above, I am of the considered opinion that the assessee in the case on hand is eligible to be allowed exemption u/s 54F of the Act in respect of multiple flats; i.e.,

Page 7 of 7 the 2 flats in the same apartment building received by him upon entering into the JDA on 07.04.2004 with M/s. Akruthi Developers. The AO is accordingly directed. Consequently ground Nos. 6 and 7 of assessee’s appeal are allowed.

at Sl. Nos. 2 to 5. (supra) are rendered academic in nature and therefore require no adjudication.

Order pronounced in the open court on this 15th day of February, 2019.