ITO, WARD-31(2), KOLKATA, KOLKATA vs. SMT. NAMITA CHOWDHURY, KOLKATA

The Assessee is an individual. The assessee owned a property measuring 5 cottahs 10 chattak 30 sq.ft in the city of Kolkata. The assessee entered into a Joint development agreement dt. 29.09.2008 with M/s Roy Tech Infrastructure Ltd. which was modified by a supplementary agreement dated 12.12.2008. As per the terms of the said agreement, the assessee was to get 50% of the construction to be carried out over the property owned by the assesse and as per the building plan sanctioned by the Kolkata Municipal Corporation. The assessee received a sum of Rs.11,000/- as advance. The assessee was to receive constructed area of 5556 sq.ft of building. The developer was free to sell 50% of the undivided share of land and 50% of the remaining construction that were to put up over the property.

On the above facts the AO was of the view that there is a transfer of the property by the assessee during the previous year relevant to A.Y.2009-10 within the meaning of section 2(47(v) of the Income Tax Act, 1961 (act). The aforesaid provision reads as follows : “”transfer”, in relation to a capital asset, includes –

The AO referred to the question of valuation of the share of the property which the assessee was to receive from the developer to the Department Valuation Officer (DVO) in terms of section 55A of the Act. The DVO in his valuation report gave the following as the value of the property which the assessee was to receive : “i) Cost of half share of land measuring 5 cottah 10 chattak 30 sq. ft. as on 23/12/1997 is ½ x Rs.3,46,018/- i.e. Rs.1,73,009/-. Indexed cost of half share of land as in the F.Y.2008-09- Rs.1,7 3,009 / - x 582/331 = Rs.3,04,203/-

On the basis of the above report of DVO, the AO was of the view that the long term capital gain chargeable to tax in the hands of the assessee was a sum of Rs.53,68,664/- which was arrived at by the AO by reducing from the sum of

The plea of the assessee was that there was no transfer by the assessee of any capital asset during the previous year relevant to A.Y.2009-10. The AO however rejected the contentions of the assessee and held that there was transfer of capital asset by the assessee during the previous year and brought to tax long term capital gain of Rs.53,68,664/-.

Before CIT(A) the assessee apart from reiterating her stand that there was no transfer of any capital asset during the previous year relevant to A.Y.2009-10 also took a plea that the assessee is entitled to exempt u/s 54/54F of the Act in respect of four flats and one shop which she got as her share of the constructed area. The assessee made a claim for deduction u/s 54/54F of the Act and in this regard relied on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Smt. K.G.Rukminiamma 331 ITR 211 (Kar) and the decision of the Hon’ble Madras High Court in the case of CIT vs Smt. V.R.Karpagam 373 ITR 121 (Mds). In the decision of the Hon’ble Karnataka High Court the assessee held a property which she gave it to a builder. The assessee got four flats representing 48% of the built up area and the remaining 52% was share of the builder. In respect of 48% built up area the assessee received four residential flats. Under section 54/54F of the Act if capital gain is invested in purchase of or construction of a residential house then the assessee would be entitled to deduction in such investment under construction or purchase of residential house. Under the proviso to section 54F(1) of the Act, deduction will not be available in the following situation :- “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 ITA No.1595/Kol/2016 Smt. Namita Choudhury A.Y.2009-10

The stand of the revenue was that since the assessee got four flats the assesse should be entitled to deduction u/s 54F of te Act only in respect of one flat and the value of the other three flats will not be entitled to deduction u/s 54F(1)of the Act. The Hon’ble Karnataka High Court held that the four residential houses/flats would constitute one residential house and the assessee shall be entitled to the benefit of section 54F of the Act on all the four flats. Similar was the ruling of the Hon’ble Madras High Court in the case of V.R.Karpagam (supra). The CIT(A) following the decisions cited by the ld. Counsel for the assessee held that no capital gain was assessable in the hands of the assessee.

Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the tribunal raising the following grounds of appeal :- “1. The Ld. CIT (A) erred in interpreting the decisions made by the Hon'ble Karnataka HC in the case of CIT Vs. K G Rukminamma (2011) (331 ITR 211) (KAR) and by the Hon'ble Madurai HC in the case of ClT Vs V R Karpagam (2015) (373 ITR 121) (MAD) and related the facts with the present case which is not at all tenable.

We have heard the rival submissions. We are of the view that there was no additional evidence whatsoever filed or considered by the CIT(A) and therefore there is no merit in ground no.2 raised by the revenue. As far as ground no.3 is concerned the non adjudication of the ground with regard to year of transfer cannot be a grievance in so far as the revenue is concerned. As far as ground no. 1 is concerned the facts of the assesee’s case and facts of the case decided by Hon’ble Karnataka High Court in the case of R.G.Rukminiamma (supra) are same. 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 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 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 ITA No.1595/Kol/2016 Smt. Namita Choudhury A.Y.2009-10

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).

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 CIT(A) was fully justified in coming to the conclusion that there was no capital gain chargeable to tax in the hands of the assessee. We uphold the order of the CIT(A) and dismiss the appeal of the revenue.

In the result the appeal by the revenue is dismissed. Order pronounced in the open Court on 02.02.2018. Sd/- Sd/-