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- 1 - ITA No. 546/2018
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF FEBRUARY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR INCOME TAX APPEAL NO. 546 OF 2018
BETWEEN:
THE PR.COMMISSIONER OF INCOME TAX CIT (A), C.R.BUILDING, ATTAVARA MANGALURU - 575 001. 2. THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-2(1), C.R.BUILDING ATTAVARA MANGALURU - 575 001. …APPELLANTS (BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
SHRI. J. KRISHNA PALEMAR PROP: LAND LINKS D.NO. 5-7-708/1, NO.9 CITY POINT, KODIALBAIL MANGALURU - 575 003. PAN: ACZPP 0444N. …RESPONDENT
(BY SHRI. A. MAHESH CHOWDHARY, ADVOCATE)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.04.2018 PASSED IN ITA NO.712/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.712/BANG/2014 DATED 24.04.2018 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), MANGALURU AND ETC.,
THIS ITA, COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:
Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA
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JUDGMENT
This appeal by the Revenue is directed against the order dated April 24, 2018 in ITA No.712/Bang/2014 for the A.Y. 2011-12 has been admitted to consider the following question of law; “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of claim made under section 54F of the Act by holding that out of five properties held by assessee, three properties cannot be considered as residential properties and as for remaining two properties are concerned, remanded the matter to CIT(A) for fresh decision ignoring that assessee held more than one house other than the new asset on the day of transfer of the original asset i.e., on the date of valuation and all the five properties held by assessee were residential properties barring assessee from making claim under Section 54F of the Act as per proviso to said section?”
Heard Shri M.Dilip, learned standing counsel for the Revenue and Shri Mahesh Chowdary, learned advocate for the respondent-assessee.
Shri Dilip for the Revenue submitted that assessee has sold 10 Acres - 2 guntas of land in the year relevant for the A.Y. 2011-12 for a consideration of Rs.11.70 Crores. He has purchased a house in Mangaluru for Rs.7.10 Crores and claimed deduction of Rs.5.88 Crores
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under Section 54F of the Income Tax Act, 19611. Learned AO2 rejected the deduction on the premise that assessee owned more than one residential house. The CIT(A)3 allowed assessee’s appeal on the ground that the properties owned by the assessee were business assets. Revenue preferred an appeal to the ITAT4 and the ITAT has remitted the matter with regard to items No.2 and 4 to the CIT(A) for reconsideration and has not recorded any finding with regard to item No.1. With regard to items No.3, 5 and 6, the ITAT has dismissed Revenue’s appeal by holding that the said properties cannot be considered as residential properties.
Shri Dilip further submitted that six properties which are under consideration are as follows; “1. Assessee has a house property, which is self occupied, called ‘Palemar’ at Bejai Church Road, Mangalore. The address of this property is survey No.117-1A, 142/2A, Kodialbail, Mangalore. This has also been declared in the affidavit filed by the assessee before the Assembly Election of Karnataka 2013.
1 ‘the Act’ for short 2 Assessing Officer 3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal
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The assessee has a residential property at Chilimbi, which is shown in the schedule of fixed assets and explained by the AR as used for storing construction materials. The section 54F does not speak anything about the use of residential property. Moreover, assessee has not produced any evidence to prove his claim that the above property is used by him for storing construction material. This property has been demolished by the assessee and multi-storied complex is coming up on the land of this property. Hence, it is not possible to verify the use of the property as on to-day by the assessee as claimed by him. A residential property can be used by the owner for any purpose, but it should be a residential property. There is no doubt form the description of the property in the purchase deed that it is a residential property which has subsequently been demolished by the assessee to use the land for constructing multi-storied residential building vide licence issued by the MCC dt.21.05.2012.
The assessee owns an Apartment of 1112 sq.ft at 1st floor with one covered Car Parking Space at Basement Floor, marked as No.10, situated at 1st Main Road, Kalidas Lane, Gandhi Nagar, Bangalore. It is claimed by the assessee that this flat has been transferred on 06.1.2009 vide unregistered sale agreement to Sri. Manoj Kalya. This flat has been shown in the balance sheet of A.Y.2010- 11. There is no capital gain whatsoever shown in the return of income for the A.Y.2009-10 by the assessee on sale of this flat. It means, the assessee himself has not recognized the sale on 6.1.2009. Hence it is assumed that this flat was still in the ownership of the assessee on the date of transfer of the land at Mysore during the financial year relevant to this assessment year.
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In addition to the above residential properties, the assessee has a residential property at 90B, Boloor Village, Mangalore purchased on 26.2.2010. This property has been explained as part of Chilimbi property by the assessee. As per the purchase deed of the property, it is a separate property situated on the land of 905 cent with residential building bearing D.No.2-1-42 & 2-1-42/1. This might be adjacent to the Chilimbi property, which is shown in the Fixed Schedule of the Balance Sheet of the assessee. The assessee might have clubbed all the land in the properties, which is called as Chilimbi property in the Balance-sheet for the purpose of development of residential complex. But, it does not take out the individually status of the property, which shows that it was a residential property at the time of sale of original asset during the F.Y,2010-11. Hence, for the purpose of this order, this property is also treated as a residential house in the owner ship of the assessee
The property at Katipalla Village, Mangalore is described in the Gift Deed Dt. 12.01.2009 as a property consisting of 10.2 acre of land with a building bearing No. Katipalla 9-27A, 27A-1 & 27B. The assessee has explained it as an Agricultural Property in the Balance-sheet. It does not change the character of the property that the agricultural land was having a building inside, which was fit to be used for residential purpose.
In addition to this, the assessee also has one unsold flat of 955 sq.ft in 5H Project which is also a residential flat and agreement for sale was entered only on 28.4.2011. Hence, this flat was also there in the ownership of the assessee on the date of transfer of the original asset on 30.11.2010.”
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Making particular reference to item No.3, he submitted that the said property is a flat measuring 1112 sq.ft., situated at first floor of the apartment building in Gandhi Nagar, Bengaluru. He submitted that the AO has rejected assessee’s claim for deduction and the CIT(A) has held that the said property is a business asset and allowed deduction under Section 54F. He submitted that the AO has recorded a finding of fact that there exists a building in item No.5, whereas the CIT(A) has held that there is no building in the said property. With regard to item No.6, Shri Dilip submitted that it is also a flat which according to the assessee is under construction and it is owned by the assessee. The CIT(A) has not recorded findings with regard to each property. In substance, Shri Dilip submitted that item No.2 is a residential property owned by the assessee. Therefore, he is not entitled for deduction under Section 54F.
Shri Chowdary for the assessee submitted that The ITAT has remanded the matter to the CIT(A) with regard to items No.2 and 4 for a
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fresh consideration. Therefore, the matter may be remanded to the CIT(A) to consider remaining items of the assessee’s assets afresh; Item No.3 is a flat but used as an office. Usage of the building is sine qua non for consideration of Section 54F of the Act and it was also sought to be sold under an Agreement to sell dated 06.01.2009 in favour of one Mr.Manoj Kalya but the Sale Deed has not been executed in favour of the said prospective purchaser. The CIT(A) has recorded a finding that item No.3 has been shown as stock in trade and as advance received in the Balance Sheet for relevant financial year; With regard to item No.1, he submitted that there is no finding as to whether it is a residential house or not; Regarding item No.5, he submitted that a finding has been recorded by the CIT(A) that there is no building; and
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With regard to item No.6, he submitted that it is a part of unsold flats.
With these submissions, he prayed for dismissal of this appeal.
We have carefully considered rival contentions and perused the records.
The issue involved in this appeal is whether the assessee is entitled for deduction under Section 54F of the Act. Undisputed facts of the case are, the AO has considered five items mentioned hereinabove. Assessee has purchased a house in Mangaluru after selling his land to M/s. Shobha Developers.
He has claimed deduction of Rs.5.58 Crores under Section 54F. The AO has considered five items while considering assessee’s claim under Section 54F. The CIT(A), has not recorded any individual finding with regard to each item but recorded thus, “6.4. I have considered the rival contentions carefully, there is force in the arguments put forth by the AR. After going through the material facts placed before me, I hold
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that, the properties which the AO has treated as residential property are not residential properties, which are business assets of the appellant. Appellant has only one residential house other than one investment made in new assets as on date of sale. Therefore, I direct the AO to allow the appellant deduction claimed under Section 54F. Further, I direct the AO to verify the quantum of exemption claimed u/s.54F amounting to Rs.6,22,75,258/- after restricting the cost of improvement at 60%.”
So far as item No.3 upon which Revenue strongly relies, the CIT(A) has recorded thus, “He further argued that, apartment at Bangalore, which has been transferred to Mr.Manoj Kalya vide sale agreement dated 06.01.2009. The same could not be registered in the name of said Mr.Manoj Kalya since, there is a claim on the property by State Bank of Mysore. The said property is used for Appellant’s office use at Bangalore. The same is disclosed in the Balance Sheet as on 31.03.2010 as stock-in-trade and as advance received in the Balance Sheet for the year under question. Copies of the Balance Sheets are submitted before me.”
Assessee’s case before the Revenue with regard to the flat in Bengaluru (item No.3) is that an ‘Agreement to Sell’ has been executed on 06.01.2009 but Sale Deed has not yet executed. It is further case of the assessee that the same is being used has assessee’s office in Bengaluru.
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Section 54F of the Act reads as follows;
“54F. Capital gain on transfer of certain. capital assets not to be charged in case of investment in resident house, -(1) Where, in the case of an assessee being an individual, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or after the date on which the transfer took place purchase, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, this is to say, - a. if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; b. if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
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.
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Explanation.- For the purpose of this section,- (i) “long-term capital asset” means a capital asset which is not a short-term capital asset;
(ii) “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.”
Section 54F is beneficial legislation. Deduction on capital gains is given when a person invests money to purchase a residential house.
It is undisputed that the flat in Bengaluru (item No.3) is also owned by the assessee. Although claim is made that the same is used as an office, the CIT(A) has held that it is disclosed as ‘stock in trade’ in the Balance Sheet as on 31.03.2010. To a pointed query as to how the returns are filed by the assessee, learned advocate for the assessee, in his usual fairness, submitted that it is filed in ‘individual capacity’. Question of ‘stock in trade’ will arise for consideration only in the case of builders who will construct the flats and sell them in the course of
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their business. Learned advocate for the assessee submitted that though the returns are filed in the name of an individual, assessee is Proprietor of one M/s. Land Links which is engaged in real estate development. To a further query as to whether there is any material on record or any finding by any authority to substantiate that the assessee is Proprietor of a firm engaged in real estate business which has done any business, he submitted that assessee purchases land, forms layout, puts up construction and thereafter sells. To a further query that any such activity is on record or finding of fact has been recorded by any of the authorities, learned advocate for the assessee fairly submitted that neither any fact is recorded nor there is any material on record to show that assessee is in business of construction and sale of flats. As recorded by us, the question of ‘stock in trade’ with regard to a residential property would come into play in case of builders and not in the case of an individual.
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The next argument advanced by the learned advocate for the assessee is that the CIT(A) has noticed that the flat in question has been transferred to one Mr.Manoj Kalya under an agreement to sell. Therefore, the said flat cannot be held in the hands of the assessee. We are not persuaded to accept this argument for the reason that the transfer of title of any immovable property worth more than Rs.100 should be registered under Section 17(b) of the Registration Act, 1908. The resultant position is that item No.3 is a residential house in the name of assessee, no matter if it is used by the assessee as an office. With regard to item No.5, the AO has held that there is building but the CIT(A) has recorded a finding that there is no building. In any event, assessee has more than one residential property in his name in India. Therefore, benefit of Section 54F is not available to him.
Learned advocate for the assessee has placed reliance on Navin Jolly Vs. Income Tax Officer5.
5 [2020] 117 Taxmann.com 323 (Karnataka)
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The said authority is not applicable in this case because the assessee therein owned two flats of 500 Sq.Ft. in the same building.
In view of the above, this appeal merits consideration. Hence, the following; ORDER (i) Appeal is allowed; (ii) Order dated April 24, 2018 in ITA No.712/Bang/2014 passed by the ITAT, Bengaluru is set-aside; and (iii) Questions of law are answered in favour of the Revenue and against the assessee. No costs.
Sd/- JUDGE
Sd/- JUDGE