ASST CIT 19(3), MUMBAI vs. EIDRED JOSEPH PEREIRA, MUMBAI

2.Effective ground of appeal is about deduction u/s.54 of the Act. During the assessment proceedings in the AY.2008-09, in the assessee’s own case, the AO noticed that the assessee along with one of the co-owners had gained right title and interest in one property at Bandra by virtue of being the legal heir of the property owner,that vide development agreement, dated 21/02/2003, the co-owners entered into an agreement with a partnership firm to develop the property by bringing in the transferable and loadable TDR at the cost of the developers, that the consideration for conferring the right for development agreed it was for cheque component of Rs.40 lakhs and non-monetary component of fully constructed area of 763.03 sq. mtrs., that the value of the both the components was declared at Rs. 78.82 lakhs. The AO, however, noticed that the acknowledgement of registered and delivered document for the said development agreement showed the market value of the property at Rs. 1.75 crores as against 30 lakhs as earnest money and Rs. 10 lakhs being the receivable amount on approval of the plans.Accordingly,he observed that the assessee had offered an amount of Rs.59.41 lakhs as his share,that the value adopted by the registrar of the property was Rs. 87.62 lakhs (50% of 4623/M/14-Eldred Joseph Pereira Rs. 1.75 crores). Considering the above facts he held that there were reasons to believe that income of the assessee liable for tax had escaped assessment. Therefore he issued a notice u/s.148 of the Act. During the assessment proceedings the assessee objected to the value adopted by the registrar which according to him had been erroneously taken because as per the Stamp Duty Ready Recknor and the valuation report from the Registered Valuer the share in the property was at Rs.49.41 lakhs only, that there was no cost to TDR and therefore no question of capital gains in the hands of the assessee, that he had paid Rs. Five lakhs to one of the old tenants of the building to vacate the tenant, he had incurred an expenditure of Rs. 39.40 lakhs for construction of residential accommodation constructed were by the developers, that the developer had constructed flats on the area of 763.03 sq. mtrs. retained by the assessee as per the agreement that his share was 50%, that he had claimed deduction of 50% on constructed cost of that area calculated at the rate of Rs.10,330 per square mtrs. at Rs. 39.40 lakhs u/s.54 of the Act. It was further stated that total constructed area for him was 381.52 sq.mtrs. which is 50% of 763.03 sq.mtrs. and the area of the total plot was 618.07 sq.mtrs, that the plan for residential building could not accommodate the entire 381.32 sq.mtrs. on one floor, that he was allotted the said construction areas by way of four flats i.e. two adjacent flats on the sixth floor one flats on the third floor and the other on the second floor. The assessee relied upon various case laws to support his argument that on sale of TDR capital gains was not chargeable. After considering the submission of the assessee, the AO rejected the claim made by the assessee u/s.54 of the Act at Rs. 39.40 lakhs in respect of four flats developed against the monetary as well as non-monetary consideration received by the assessee and held that the long-term capital gain was in respect of the land that was not a residential house, that deduction u/s.54 of the Act was not available, that deduction under the said section was available only when an assessee would purchase a new house property, that four flats formed part of consideration received towards transfer of development rights of the original house property, that the flats had not been considered constructed by the assessee, that the requirement of section 54 was not fulfilled. Accordingly, the AO considered the amount of Rs.87.62 lakhs as sale consideration and after allowing indexed cost of acquisition at Rs.7.94 lakhs computed the gross consideration at Rs.79.67 lakhs. From that he allowed legal fees paid of Rs.1.70 lakhs and compensation paid to tenants at Rs. 5 lakhs.Finally,he computed the long-term capital gain at Rs.72.97 lakhs.

We have perused the material available on record. We find that the AO had taxed the non- monetary benefits of the assessee and had denied him the benefit of section 54 of the Act, that the FAA had allowed the appeal of the assessee. We find that in the case of Hema Sunil Rane (supra) the tribunal had decided the issue as under: “6.8. The above issue has been duly considered by the ITAT ‘J’bench, Mumbai in a very recent order dtd. 19.1l.2013, in the case of M/s. Jawahar N. Ghia & others (AOP), Dr. Rane (Mrs.Hema Sunil) in A.Y. 2004-05 in /2012. The relevant part of the decision is reproduced as under: " ... on the issue of allowability of exemption u/ s. 54/54 F , the AO has denied the exemption u/ s 54/ 54F on the ground that assessee has not purchased new residential property s for absorbing this long term capital gain arising out of transfer of property in question. It is relevant to note that the development agreement itself emphasizes on the area which shall be allowed to the beneficiaries in newly constructed building as against their existing areas. The said development agreement clearly indicates the aforesaid statistics in respect of allotment of areas. This suggests that the allotment in newly constructed building under the development agreement is an adjustment of debts in respect of transfer of property within the meaning of development agreement dated 9th November 2003. Considering this fact in the light of the provisions of section 54, the word purchased in section 54 must be interpreted in its ordinary meaning as buying for a price or equivalent of a price by payment in kind or adjustment towards old debts or for other monetary consideration. The said proposition is supported is by the decision of the Hon'ble Apex court ·in the case of CIT vs V.T.N Arvinda Reddy (120 ITR 46 SC) wherein it has been held that there is no reason to divorce the ordinary meaning of the word 'purchase' as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration from its legal meaning in section 54 (1). Undoubtedly, each release in the case is a transfer of (he releasor's share for consideration to the release. In view of the mentioned discussion, we are of the considered view that the assessee is entitled for the deduction u/ s 54/ 54F and hence we do not find any justifiable reason to interfere with order of the learned CIT(A) on this count. Resultantly, the issue of allowability of exemption u/s. 54/54F is decided in favour of the assessee and against the revenue.”