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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’
Before: SHRI N.V VASUDEVAN & SHRI JASON P BOAZShri. T.A.V. Gupta,
PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER :
This is an appeal by the assessee against the order dated 1/12/2017 of
Commissioner of Income-tax (Appeals) - 7, Bengaluru relating to asst. year 2014-15.
The grounds of appeal raised by the assessee reads as follows:-
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“1. The order of the learned CIT (A) is prejudicial to the interest of the appellant and is bad and unsustainable in the eye of law. 2. The CIT(A) ought to have appreciated that the interpretation of jurisdictional high court in the case of K.G.Rukminiamma squarely covers the issue which should be understood in the sense that the acquisition was in the same building and therefore, the appellant was eligible for relief. 3. CIT(A) grossly erred in ignoring that even the amendment to provisions of S.54/54F which restricts the meaning of 'a' used in the sections would apply prospectively; this being a substantive piece of legislation can never be clarificatory in nature as misunderstood by the AO and hence, the claim of the appellant could never have been denied. 4. Without prejudice, the CIT(A) ought to have appreciated that the appellant having reinvested the entire sale consideration in acquiring new asset, appellant's claim for deduction under S.54F of the Act was in order. 5. The Appellant craves the leave of the Court to add, amend, alter, and/or withdraw any or all grounds before or during the hearing. PRAYER 6. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed by directing the AO to delete the denial of deduction under S.54F of the Act, in the interest of justice and equity”. 3. The assessee is an individual. He owned residential site at Bangalore. The Assessee entered into Joint Venture Agreement (JDA) dated 24/6/2005 with M/S.Sai Vishwas Construction, (duly registered) for carrying out development over the land owned by her by construction of flats. As per the JDA with M/s Sai Vishwas Construction, the developer has to construct 16 residential flats on the above mentioned site owned by the assessee. As per the terms of the JDS, the assessee was
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entitled for 37.5% of the super built up area in the form of 6 flats in consideration conveying proportionate undivided share of the land to the developer or to his nominee or nominees. It is not in dispute that the capital gain on transfer under the JDA was a sum of Rs.1,20,77,526/- and the capital gain was long terms capital gain. The capital gain computed is based on the value of 6 flats which the assessee got as his share of built up area under the JDA. The assessee claimed deduct ion u/s 54F of the Act in respect of all the 6 flats. The AO refused to allow the claim for deduction for on the ground that u/s.54F of the Act, deduction is allowed only on investment in acquiring “a residential house” and 6 flats got by the Assessee from the builder cannot be said to be one residential house. According to the AO, Investment in 6 residential flats is a clear violation of the conditions stipulated in section 54F and it was as good as investment in more than one residential house and the income from such house is chargeable under income from house property, The AO also held that the assessee’s contention that all the 6 flats represent one residential property is not correct. In this regard the AO referred to the fact that an amendment was carried out to Sec.54F of the Act by the Finance (No.2) Act, 2014 w.e.f 1.4.2015 whereby the expression “a residential house” in Sec.54F of the Act was amended to read “one residential house”. The Assessee had contended that the aforesaid amendment made to section 54F is not applicable to the A.Y. under consideration and was prospective and applicable only from AY 2015-16. The Assessee relied on the decision of the 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 on facts identical to the case of the Assessee, it was
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held that deduction u/s.54F of the Act was to be allowed and that the amendment to Sec.54F by the Finance (No.2) Act, 2014 was applicable only from AY 2015-16. The AO however held that the assessee's contention was not acceptable since the intention of the legislature was to give deduction in respect of investment in one residential house in India and the amendment to Sec.54F of the Act was only clarificatory and applicable retrospectively. When different interpretations were made to the section, amendment was made to section 54F in the Finance Act 2014. The intention of legislature is evident from the explanatory notes to the provisions of the Finance (no.2) Act, 2014. The amendment made to Section 54F is clarificatory in nature. According to him there was no jurisdictional High Court decision in favour of the assessee on the issue of deduction u/s 54F. He therefore held that each of the 6 units is considered as a separate house property for the purpose of assessment of property tax by the state administration. The AO therefore held that assessee does not fulfill the conditions laid down in section 54F in order to be eligible for deduction. Accordingly, claim of deduction u/s 54F amounting to Rs.1,36,34,526/- was disallowed by the AO.
On appeal by the Assessee, the CIT(A) confirmed the order of the AO. The Assessee before CIT(A) relied 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 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:
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'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- ………” 2. 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:- “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"
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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. Hence, we do not see any substantial question of law arising for consideration in this appeal. Accordingly, the appeal is dismissed.” 5. 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).
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The CIT(A) however relied on the decision of the Karnataka High Court in the case of CIT Vs. Late Khhbchand M Makhija in ITA No. 496/Bang/2007 judgment dated 18/12/2013 and held that the Hon’ble Karnataka High Court took the view contrary to the view taken by the Hon’ble High Court in the case of K.G Rukminiamma (Supra). He held that 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 6 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 eligible for deduction u/s 54F.
Aggrieved by the order of the CIT(A) the Assessee has preferred the present appeal before the Tribunal. We have heard the rival submissions. The learned DR relied on the order of the CIT(A). The learned cunsel for the Assessee reiterated stand of the Assessee as put forth before the lower authorities.
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 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
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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 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.
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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). Therefore it cannot be said that the amendment to Sec.54F of the Act by the Finance (No.2) Act, 2014 which was applicable only w.e.f 1.4.2015 i.e., for AY 2015-16 onwards was curative and applicable retrospectively in the light of the decision of the Hon’ble Madras High Court in the case of V.R.Karpagam (supra). The fact that there was no jurisdictional High Court decision on the point is no ground for the AO not to follow the judgment of High Court though it is not jurisdictional.
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 6 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
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the assessee. We hold and direct accordingly and allow the appeal of the Assessee.
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. ……………………………………………..