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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER :
This is an appeal by the assessee against the order dated 19/10/2017 of Commissioner of Income-tax (Appeals) - 10, Bengaluru relating to asst. year 2014-15.
The assessee is an individual. She owned property in Bangalore. She entered into a Joint Development Agreement (JDA) dated 9/8/2012 with N.R Builders and Developers for carrying out development over the land owned by her by constructing flats. As per the JDA, the assessee was to get 13 flats as her share of built up area in consideration for transferring proportionate undivided share of land equivalent to the
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built up area of the remaining constructed area over and above 13 flats to be given to the Assessee, which was the share of the developer in the built up area.
The return of income filed for assessment year 2014-15. The assessee declared Long Term Capital Gain (LTCG) of Rs.1,41,08,787/- and claimed deduction u/s 54F of the Income Tax Act, 1961 (Act) on the ground that she acquired property by utilizing the LTCG viz., the 13 residential flats which she got as her share of built up area under the JDA.
'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 (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
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(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 AO examined the claim of Assessee for deduction u/s 54F of the Act. He held that as per the proviso (a)(i)to Sec.54F(1), deduction u/s.54F of the Act is allowed only for a residential house. Since the Assessee purchased 13 flats the same cannot be one residential house. Moreover as per proviso (a)(ii) if the Assessee purchases more than on residential house within the time specified in the proviso the claim made in respect of one residential unit also has to be disallowed. He also observed that the enquiries revealed that the Assessee has sold two flats out of her share of built up area in AY 2015-16. He held that the condition that the new asset should not be sold within the period mentioned in Sec.54F(3) of the Act has also been contravened. The AO also observed that capital gain on transfer of land under JDA was assesseable only in AY 2013-14 i.e., the previous year in which JDA was entered into as per the decision of Hon’ble Karnataka High Court in the case of T.K.Dayalu. He however assessed the income declared on a protective basis allowing nil deduction u/s.54F of the Act.
Before the CIT(A), the assessee placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. K.G Rukminiamma – 331 ITR 221, wherein the Hon’ble Karnataka High Court held on the facts of the case which are
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identical to the case of the assessee (though in the context of sec. 54 of the Act which is pari materia the same as sec. 54F of the Act) 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) 9. 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:-
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“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. 11. 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.
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Hence, we do not see any substantial question of law arising for consideration in this appeal. Accordingly, the appeal is dismissed.” 6. The assessee also pointed out that the decision of the Hon’ble Karnataka High Court has been followed by the Hon’ble Delhi High Court in the case of CIT Vs. Gita Duggal – 357 ITR 153 (Del) and the Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Syed Ali Adil (2013) 352 ITR 418(AP). The CIT(A) however did not agree with the submissions made by the assessee and he held that the facts of the Assessee’s case were different from the facts of the cases cited on behalf of the Assessee. According to CIT(A) in all the cases decided above two flats were treated as one flat because of connectivity between independent units. According to him the decisions will apply only when there are two adjacent flats, two or more interconnected floors etc. According to the CIT(A), in the case of the Assessee no such Connection exists and all the Units were independent of each other. The CIT(A) found that the share of flats of the Assessee and the builder were as follows: –
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According to the CIT(A), going by the definition of the a residential house the flats that the Assessee got as his share under the JDA cannot be termed as constituting “a residential house”. According to the CIT(A), the term house has not been given any statutory definition and, thus, has to be understood in common parlance. A house may constitute of several units having independent identity also. But each unit must be a part of the house and should have some common link with the house of which it is a part. But in the instant case the units are separate from each other and they do not have anything common which can give it the status of the part of a house. A flat can be a part of the house but cannot be independent of the house. He held that in the case of the Assessee the flats were separate from each other and do not form part of the house. Therefore, the Assessee cannot claim that all the 13 flats constitute on house. The CIT(A) therefore agreed with the view of the AO and held that the Assessee has violated the provisions of section 54F of the Act and hence cannot be
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eligible for deduction u/s 54F. Therefore, he uphold the addition of Rs.1,41,08,787/- made by the AO.
Aggrieved by the order of the CIT(A), the assessee has preferred present appeal before the Tribunal.
The ld counsel for assessee apart from relying on the decision relied upon before the CIT(A) also placed reliance on the decision of 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, wherein the Hon’ble Madras High Court has also taken a similar view.
The ld DR submitted that very same Hon’ble Karnataka High Court in the latter judgment in the case of CIT Vs. Late Khhbchand M Makhija in ITA No. 496/Bang/2007 judgment dated 18/12/2013 took the view contrary to the view taken by the Hon’ble High Court in the case of K.G Rukminiamma (Supra).
The ld counsel for the assessee pointed out that the case of the Late Khubchand M Makhija (Supra), the facts were different in as much as one residential house was sold and the Long Term Capital Gain on such sale was used to buy two independent residential houses. He brought to our notice paragraph 15 & 16 of the judgment in the case of Khubchand M.Makhija (supra) wherein the distinguishing facts between the facts of K.G.Rukminiammal(supra) and the facts of the case Khubchand M.Makhija (supra) were noticed by the Hon’ble Karnataka High Court. It was submitted by him that all the 13 flats in the present case were situate in the same premises and, therefore, the decision rendered in the case of Smt. K.G Rukminiamma (Supra) still apply.
We have given careful consideration to 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, the facts were on a site measuring 30’ x 110' the assessee had a residential
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premises. Under a joint development agreement she gave that property to a builder for putting up flats. Under the agreement 8 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. As far as the decision of the Hon’ble Madras High Court in the case of V.R. Karpagam (supra) is concerned the facts were similar to the case of the assessee. 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
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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 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). As far as the decision of the Hon’ble Karnataka High Court in the case of Khubchand Makhija (supra) is concerned, as rightly pointed out by the learned counsel for the Assessee the facts of the aforesaid case are clearly distinguishable from the facts of the case of the Assessee and the facts of the case of K.G.Rukmaniamma (supra) decided by the Hon’ble Karnataka High Court. In the case of the Late Khubchand M Makhija (Supra), the facts were that one residential house was sold and the Long Term Capital Gain on such sale was used to buy two independent residential houses. This aspect has been noticed by the Hon’ble Court in paragraph 15 & 16 of the judgment in the case of Khubchand M.Makhija (supra) wherein the distinguishing facts between the facts of K.G.Rukminiammal(supra) and the facts of the case Khubchand M.Makhija (supra) were brought out by the Hon’ble Karnataka High Court. 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 there was no capital gain chargeable to tax in the hands of the assessee. We hold and direct accordingly and allow the appeal of the Assessee.
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In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 25th April, 2018.
Sd/- Sd/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore Dated : 25/4/2018 Vms Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT concerned. 5.DR 6.GF By order
Sr. Private Secretary, ITAT, Bangalore
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Date of Dictation …………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr. P. S.……………………….. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ……………….. 9. Date on which order goes for Xerox & endorsement………………….. 10. Date on which the file goes to the Head Clerk ……………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..