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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
Since the issue urged in these appeals is identical in nature and is arising out of common set of facts, I heard both the appeals together and they are being disposed of by this common order, for the sake of convenience.
2 Shri Kailash S. Panveli & Shri Pratap Shankar Panveli 3. Facts relating to the issue are stated in brief. These assessees alongwith two other persons named Shri Krishna S. Panveli and Shri Jagdish S. Panveli jointly owned a land along with buildings located therein at Andheri West, Mumbai. They entered into deed of conveyance with M/s. Hetali Enterprises on 6.9.2007 for sale of the above said property. As per the conveyance deed, these four persons will receive a sum of ` 51 lakhs together and also four constructed flats at free of cost. Each of the co-owners were entitled to one flat each. The assessees herein declared “nil” amount as capital gain.
In the case of Shri Kailash S. Panveli, the Assessing Officer noticed that the stamp duty valuation of the property was fixed at ` 93,52,000/- and the share of the assessee at 25% thereof worked out to ` 23,38,000/-. The Assessing Officer assessed the same as capital gain in the hands of the assessee as per the provisions of sec. 50C of the Act. However, he did not give any deduction towards purchase cost of property. He also ignored the cost of flat obtained by the assessee, since it was obtained free.
In the case of Shri Pratap S. Panveli, a different type of computation was made by the Assessing Officer, i.e., he also adopted the stamp duty valuation of ` 93,52,000/- u/s 50C of the Act and the share of the assessee on it was taken at ` 23,38,000/-. The Assessing Officer considered the value of flat allotted to the assessee, which was worked out at ` 39,95,255/-, as a part of sale consideration. Accordingly the Assessing Officer determined the value of sale consideration at ` 63,33,225/- (Rs.23,38,000/- + Rs.39,95,255/-) and allowed deduction of indexed purchase cost of ` 25,01,231/-. Accordingly the Assessing Officer computed long term capital gain at ` 38.31 lakhs. The assessee claimed deduction u/s. 54 of the Act in respect of cost of new flat obtained by him, but the said claim was rejected by the Assessing Officer.
The appeal filed by Shri Pratap S. Panveli did not find favour with the learned CIT(A). In the appeal filed by Shri Kailash S. Panveli, learned CIT(A) computed capital gain in accordance with computation made in the hands of 3 Shri Kailash S. Panveli & Shri Pratap Shankar Panveli Shri Pratap S. Panveli. In effect, learned CIT(A) enhanced income of Shri Kailash S. Panveli by ` 15.44 lakhs. Aggrieved by the orders passed by learned CIT(A) both the parties have filed these appeals before us.
I heard the parties on this issue. In my view, following issues arise for my consideration in these appeals:- (a) Whether the provisions of sec. 50C are applicable in these cases. (b) Whether these assessees are entitled to deduction u/s 54 of the Act on the cost of new flat acquired by them.
The total sale consideration received by these assessees consists of two parts, viz., (a) 25% share in the cash component of Rs.51.00 lakhs and (b) one flat at free of cost. There is no dispute between the parties that the cost of each flat was taken at Rs.39.95 lakhs. Hence the total consideration received for the property was Rs.51.00 lakhs plus cost of four flats, i.e., Rs.51.00 lakhs plus Rs.159.80 lakhs aggregating to Rs.210.80 lakhs.
The provisions of sec. 50C(1), as existed in the relevant period, read as under:- “50C(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.”
In the instant cases, the valuation adopted by the authority of the State Government for the purposes of payment of stamp duty was Rs.93,52,000/-, whereas the value of sale consideration (after including the value of free flats) declared by the assessees for income tax purposes, in aggregate, works out to Rs.210.80 lakhs. Hence the sale consideration adopted for the purposes of income tax purposes is more than the stamp duty valuation and hence, in my view, the provisions of sec. 50C are not applicable in the instant cases.
4 Shri Kailash S. Panveli & Shri Pratap Shankar Panveli Accordingly I decide this issue in favour of the assessees. Accordingly, I set aside the orders passed by Ld CIT(A) on this issue and direct the AO not to apply the provisions of sec. 50C in the instant cases.
The next issue relates to the deduction claimed u/s 54 of the Act. The Ld CIT(A) considered the decision rendered by the Co-ordinate bench of Tribunal in the case of Shri Jatinder Kumar Madan (ITA No.6921/Mum/2010 dated 25-04-2012), wherein it was held that the acquisition of new flat under a development agreement in exchange of the old flat amounts to construction of new flat and the provisions of sec. 54 shall be applicable if the new flat was constructed within the time stipulated in sec. 54 of the Act. The Ld CIT(A) noticed that the old property was handed over to the builder on 06-09-2007 and the occupation certificate of new flat was obtained only on 27.12.2011. Accordingly, the Ld CIT(A) took the view that the new flat was not constructed within the stipulated period of 3 years and accordingly rejected the claim of assessees for deduction u/s 54 of the Act.
The Ld A.R submitted that the assessees were getting new flats as part of sale consideration and hence they should be considered have paid entire consideration in respect of new flat. Accordingly he submitted that the assessees have fully utilized the capital gains in purchase of new flat. He further submitted that the CBDT itself has observed that the utilization of capital gain alone is relevant and taking possession of flat was a formality. Accordingly he contended that the assessees should be allowed deduction u/s 54 of the Act on the cost of new flat. The Ld A.R placed reliance on the following case law in support of his contentions. (a) CIT Vs. Mrs. Hilla J B Wadia (216 ITR 376)(Bom) (b) Pr. Cit Vs. C.Gopalaswamy (2016)(384 ITR 307)(Kar) (c) Muthuletchumi Janardanan Vs, DCIT (2012)(34 CCH 0193)(Cochin)
5 Shri Kailash S. Panveli & Shri Pratap Shankar Panveli 12. On the contrary, the Ld D.R supported the order passed by Ld CIT(A) on this issue. Since the value of new flat is considered as part of sale consideration of property, there is merit in the contentions of the assessee that the capital gains should be considered as having been utilized in construction of new flat. Since the entire cost relating to new flats should be treated as having been paid by the assessee, in the facts and circumstances of the case, in my view, the decision rendered by Hon’ble jurisdictional Bombay High Court in the case of Mrs. Hilla J.B.Wadia (supra) is applicable to the present cases also. The Hon’ble Karnataka High Court has also taken the view in the case of C. Gopalaswamy (supra) that the utilization of capital gains in construction of residential house is the material factor in determining the eligibility for deduction u/s 54 of the Act. In the case of Muthuletchumi Janardhanan (supra), the Cochin bench has referred to the circular No.471 dated 15.10.1986 and Part 2 of Circular No.672 dated 16.3.1993 and observed that the CBDT itself has stated that the taking the delivery of possession is only a formality.
In view of the decision rendered by the High Court (referred supra) and the circular of CBDT (referred above), we are unable to agree with the view of the Ld CIT(A) that the possession should have been taken within three years. Since the assessees have been considered to have paid entire cost of new flats, in my view, they should be allowed deduction u/s 54 of the Act in respect of cost of new flats. Accordingly, I set aside the orders passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 54 of the Act in respect of cost of new flats.
In the result, both the appeals of the assessees are treated as allowed. Order has been pronounced in the Court on 2.9.2016