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ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue under section 253 of Income-tax Act (‘Act’) is directed against the order of ld. Commissioner of Income-tax (Appeals)- 37, Mumbai [hereinafter referred as ld. CIT(A)] dated 27.09.2017, which in turn arise from the assessment order dated 11.12.2015 passed under section 143(3) for Assessment Year 2013-14. The revenue has raised the following grounds of appeal: 1."On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,55,12,290/- on account of Short Term Capital Gain stating that the right in a property is created once its title is allotted to the purchaser and more so, if full consideration is paid. As the appellant had received an allotment letter vide dated 26.02.2008 and paid full consideration by 24.07.2008. Therefore the appellant got the title to the property on the issuance of the allotment letter by the builder/seller."
1. Mum 2017-Shri Paras H. Shah
2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the deduction claimed u/s. 54F, stating that the house was purchased within two years of sale, as required u/s. 54F." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the addition was made by the AO because it was clearly mentioned in the 2nd para of the Allotment letter that the documents regarding allotment would be executed after the same was stamped by the buyers. As the assessee entered into an agreement for sale (for purchasing the under construction flat) on 25.03.2010 and the period of holding of rights from 25.03.2010 to 04.04.2012 is less than 36 months, thereby making the gain on transfer of rights as short term capital gain." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the allotment letter did not contain the flat number nor any unconditional rights to dispose of the property. It is clear that the allotment letter was only an offer and the right or interest in property was to accrue only on signing and stamping of the agreement. Only the agreement dt. 25.03.2010 conveyed the right to acquire the property which was under construction on the date of agreement." 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the assessee had not purchased the new property claimed u/s 54F, but just made an advance payment to the builder. The assessee had not entered into any agreement with the buyer." 2. Brief facts of the case are that the assessee being an individual, filed his return of income for relevant Assessment Year on 31.03.2013 declaring income of Rs. 2,60,07,088/-. The return of income was selected for scrutiny. The assessment was completed under section 143(3) of the Act on 11.12.2015. In the return of income, the assessee declared Long Term Capital Gain (LTCG) of Rs. 2,39,65,910/- on sale of Flat No. 1201 in the building “Natura”, Tapovan Co-operative Society Ltd., Santacruz (West) on 04.04.2012 for a sale consideration of Rs. 12 Crore, wherein 2 Mum 2017-Shri Paras H. Shah the assessee was having 50% share. The assessee also claimed exemption under section 54F on purchase of residential flat on 25.03.2010. The Assessing Officer issued show-cause notice to explain the claim of LTCG and exemption under section 54F. The assessee filed its reply dated 27.11.2015. In the reply the assessee stated that he had purchased a residential flat on 26.02.2008 vide allotment letter of same date. A payment of Rs. 5,50,000/- was made on 26.02.2008 and further payment of Rs. 1.80 crore on 24.07.2008. The purchase agreement was registered on 25.03.2010. The booking of residential flat was a capital asset and the assessee has a right with specific performance which is duly evidenced in allotment letter dated 26.02.2008. The capital asset was sold on 04.04.2012, which was acquired/ purchased on 26.02.2008.
Full payment was made by assessee on 24.07.2008. The asset was held for more than three years. Therefore, the assessee declared LTCG. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer took the view that assessee was holding the asset from the date of registration i.e. on 25.03.2010. The Assessing Officer also denied the indexation benefit and exemption under section 54F. The Assessing Officer treated the gain as STCG. On appeal before the ld. CIT(A), the gain was treated as LTCG and was allowed benefit/ exemption under section 54F. Thus, aggrieved by the order of ld. Mum 2017-Shri Paras H. Shah CIT(A), the Assessing Officer/revenue has filed the present appeal before this Tribunal.
3. We have heard the submission of ld. Department Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. At the outset of hearing, the ld. AR of the assessee submits that the grounds of appeal raised by revenue are squarely covered in favour of assessee and against the revenue by the decision of Tribunal in co-owner’s case in ITA No. 6710/Mum/2017 dated 02.04.2019. The ld. AR of the assessee further submits that similar claim of co-owner was disallowed by Assessing Officer, however, on appeal before the ld. CIT(A), the co-owner was granted full relief and appeal of the revenue was dismissed by Tribunal.
The ld. AR of the assessee submits that in sum and substance, the same ground of appeal was raised by revenue in co-owner’s case. The ld. AR of the assessee furnished the copy of decision of Tribunal in co-owner’s case as referred above.
4. On the other hand, the ld. Departmental Representative (DR) for the revenue after going through the order of Tribunal in assessee’s co-owner case as stated above, submits that the Tribunal has not considered the decision of jurisdictional High Court in Rasiklal M. Parekh vs. ACIT in dated 10.03.2017. Mum 2017-Shri Paras H. Shah
5. In the rejoinder submission, the ld. AR of the assessee submits that the Tribunal considered the later decision of Hon’ble jurisdictional High Court in PCIT vs. Vembu Vaidyanathan in dated 22.01.2019. The ld. AR of the assessee further submits that the fact in case of Rasiklal M. Parekh (supra) is different, thus, the ratio of the said decision is not applicable. In said case, the assessee booked three flats on the 9th floor of the building on 24.11.2008 and approval/ sanction for construction of 9th floor was received by the Builder only on 07.09.2010. Thus, there was no question of establishing the right in the asset (property) in the said case, which was not approved for construction at the time of execution of agreement on 24.11.2008.
We have considered the rival submission of the parties and perused the order of authorities below. We have also deliberated on various case law relied by lower authorities as well as ld. Representative of the parties. We have noted that on identical facts in respect of same property, the co-owner was also denied similar relief by the Assessing Officer, however, on appeal before the First Appellate Authority, the co-owner was granted relief on LTCG as well as exemption under section 54F. The revenue filed appeal before the Tribunal and the co-ordinate bench of Tribunal affirmed the order of ld. CIT(A) by passing the following order: Mum 2017-Shri Paras H. Shah
“5.1 We have carefully heard the rival submissions and perused relevant material on record. Upon perusal, the undisputed facts that emerges are that the assessee has acquired the rights in a duplex flat on 12th & 13th floor front facing the road admeasuring 1961.75 Square Feets & terrace measuring 881.5 Square Feets as per the attached layout plan along with 4 car parking in building known as Tapovan vide Allotment Letter dated 26/02/2008 issued by DSD Builders & Developers Pvt. Ltd. for total consideration of Rs.371 Lacs. The said allotment is not a conditional allotment and do not envisages cancellation of the allotted property, in any manner. Therefore, the assessee has acquired right in a specific property which is clearly earmarked in the layout plan. The full payment of the same has been made by the assessee by 24/07/2018 which is evident from assessee’s letter containing payment details as placed on page no. 4 of the paper-book. Subsequently, agreement of sale has been executed by the builder in assessee’s favor on 25/03/2010 which was nothing but mere improvement in assessee’s existing rights to acquire a specific property and part & parcel of the same transaction. This being the case, the case laws being relied upon by the revenue do not apply to the factual matrix of the case and therefore, rightly, distinguished by the Ld. first appellate authority.
5.2 We find that the factual matrix of the present case is squarely covered by the recent decision of Hon’ble Bombay High Court rendered in PCIT Vs. Vembu Vaidyanathan [ITA No. 1459 of 2016 dated 22/01/2019], wherein the issue has succinctly been clinched by Hon’ble Court in the following manner: - 2. This question arises in following background. The respondent- assessee is an individual. The assessee had filed the return of income for the assessment year 2009-10 and claimed long term capital gain arising out of capital asset in the nature of a residential unit. During the course of assessment, the Assessing Officer examined this claim and came to the conclusion that the gain arising out of sale of capital asset was a short term capital gain. The controversy between the assessee and the revenue revolves around the question as to when the assessee can be stated to have acquired the capital asset. The assessee argued that the 6 Mum 2017-Shri Paras H. Shah residential unit in question was acquired on the date on which the allotment letter was issued by the builder which was on 31st December, 2004. The Assessing Officer however contended that the transfer of the asset in favour of the assessee would be complete only on the date of agreement which was executed on 17th May, 2008.
CIT appeals and the Tribunal held the issue in favour of the assessee relying on various judgments of different High Courts including the judgment of this Court in case of CIT v. TATA Services Ltd. [1980] 122 ITR 594/[1999] 1 Taxman 427. Reliance was also placed on CBDT circulars.
Having heard learned counsel for the parties, we notice that the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee purchases a flat to be constructed by Delhi Development Authority ("D.D.A." for short) for which allotment letter is issued, the date of such allotment would be relevant date for the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee withdraw from the scheme and such allotment would be cancelled only under exceptional circumstances. It was noted that the allottee gets title to the property on the issue of allotment letter and the payment of installments was only a follow-up action and taking the delivery of possession is only a formality.
This aspect was further clarified by the CBDT in its later circular No.672 dated 16th December, 1993. In such circular representations were made to the board that in cases of allotment of flats or houses by co-operative societies or other institutions whose schemes of allotment and consideration are similar to those of D.D.A., similar view should be taken as was done in the board circular dated 15th October, 1986. In the circular dated 16th December, 1993 the board clarified as under: "2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No.471, dated 15-10-1986, Mum 2017-Shri Paras H. Shah such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act." It can thus be seen that the entire issue was clarified by the CBDT in its above mentioned two circulars dated 15th October, 1986 and 16th December, 1993. In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property. There is nothing on record to suggest that the allotment in construction scheme promised by the builder in the present case was materially different from the terms of allotment and construction by D.D.A.. In that view of the matter, CIT appeals of the Tribunal correctly held that the assessee had acquired the property in question on 31st December, 2004 on which the allotment letter was issued. Respectfully, following the same, we confirm the stand of Ld. first appellate authority to the extent that the resultant gains were Long-Term Capital Gains in nature. 5.3 The only surviving issue is assessee’s eligibility to claim deduction u/s 54F. The undisputed fact, in that respect, are that the assessee has made the payment within stipulated time as envisaged by Section 54F and the allotment in a specific property has been obtained by the assessee on 14/04/2012 which is evident from allotment letter as placed on page nos. 186 to 190 of the paper-book. Therefore, since all the conditions of Section 54F was fulfilled by the assessee, there could be no occasion to deny the benefit of deduction to the assessee. Therefore, no infirmity could be found in the impugned order.”
Considering the decision of Tribunal on identical facts in respect of gain earned by co-owner, the grounds of appeal
raised by revenue are dismissed. The case law relied by ld. DR for the revenue is not applicable on the facts of present case. In the said case, the allotment letter issued by developer does not conferred title until agreement to sale under the Maharashtra Ownership Flat Act (MOFA) is registered.
8. Mum 2017-Shri Paras H. Shah Further, the agreement was executed on 24.11.2008, that too beyond the period of three years from the date of surrender of tenancy. The developer has no approval for construction of floors, when the assessee had booked the flats (asset) and the builder got approval only on 07.09.2010. Therefore, the facts of Rasiklal M. Parekh (supra) are entirely on different footings.
8. We have further noted that the co-ordinate bench of Tribunal while affirming the decision of ld CIT(A) in assessee’s co-owners case has followed the recent decision of Hon’ble jurisdictional High Court in PCIT vs. Vembu Vaidyanathan (supra). No contrary fact or law is brought to our notice to take other decision. Thus, the order passed by ld CIT(A) is affirmed.
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 23 /04/2019, at the time of hearing the appeal.
Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 23.04.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File