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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
O R D E R Per N.V. Vasudevan, Judicial Member
This appeal by the Revenue is against the order dated 12.2.2015 of the CIT(Appeals)-XII, Bengaluru relating to assessment year 2011-12.
The effective grounds of appeal raised by the Revenue read as follows:-
“2. The Learned CIT(A) ought to have upheld the decision of the Assessing Officer of restricting the exemption claimed u/s 54 to the amount invested @ Rs.3000/- per sq.ft. in Flat No.301 (1325sq.ft.).
3. Although the learned CIT(A) has relied on the decision of the jurisdictional High Court in the case of CIT Vs. Ananda Basappa(2009) 309 ITR 329(Kar), he has erred in holding that the assessee is entitled to deduction u/s 54 in respect of Flat No.301 and 302 on the basis of mere proximity although the two flats were sold as separate units and are divided by a stair case whereas in the afore cited case, the Hon’ble High Court of Karnataka while allowing exemption in respect of two adjacent flats had observed that the apartments are situated side by side and the builder has effected modification of the flats to make it as one unit by opening the door between two apartments.
4. The Learned CIT(A) has erred in holding that the term “a residential house” could mean more than one residential house whereas, such a concept would defeat the purpose of sec.48 of the Income tax Act of bringing long term capital gain from sale of residential houses to tax because assessees would then be able to claim the entire capital gain as exempt u/s 54 by investing the entire amount in multiple proximal houses in apartment complexes.
5. The learned CIT(A) has erred in holding that the term “a residential house” could mean more than one residential house whereas in clauses (i) and (ii) of sec.54(1), the use of the definite article the with the words “residential house” and “new asset” in singular makes it explicitly clear that the legislative intent of section 54 is to allow exemption to the extent of the amount invested in only one residential house and not in any number of houses or otherwise, the words “the residential house” and “the new asset(s)” instead of the the residential house and the new asset would have been used.”
The undisputed facts are that the assessee is an individual. He owned a property in respect of which he entered into a Joint Development Agreement (JDA) with M/s. Sri Raj Kamal Developers on 27.12.2010. As per terms of the JDA, assessee was entitled to get 33% of the built-up area as consideration for transferring 67% of the right over the land, over which the developer has to develop and construct flats in accordance with the scheme sanctioned by the competent authority. As and by way of assessee’s share, the assessee received built-up area of 3300 sq.ft. which was received by him as follows:-
Sl.No. Flat No. Area in Sq.ft. 1. 301 1325 2. 302 1175 3. 102 800 out of total area of 1175 sq.ft. of the flat The assessee valued the built-up area at 3000/- sq.ft and considered a sum of 99,00,000/- as full value of consideration received on transfer and computed capital gains from the transfer of said property to the builder. Out of the above, after deducting the indexed cost, the assessee determined total long term capital gains at 94,01,233/- and claimed the entire gains as deductible U/s 54 of the Income Tax Act, 1961 because he got the full value of consideration in the form of flats.
The AO, on a reading of the provisions of section 54 of the Act, was of the following view:-
“As could be seen from the plain reading of the said section that the assessee will become eligible when the capital gains, arisen out of sale of buildings or land appurtenant thereto and being a residential house, invested in a residential house. In the instant case the assessee has, in lieu of land and building handed over to the builders, received two flats, i.e residential units and a part in another flat in different floor.” According to the AO, u/s.54 of the Act exemption is available only to “a residential house’, whereas the Assessee got two flats and therefore the exemption has to be restricted to only one flat.
The assessee relied on the decision of the Hon’ble High Court of Karnataka in the case of CIT v. Smt. K.G. Rukminiamma, 331 ITR 211 (Karn), wherein the Hon’ble High Court took the view that the four flats representing the share of the owner of the property in a JDA should be considered as ‘a residential house’ for the purpose of allowing deduction u/s. 54 of the Act. The AO, however, was of the view that the aforesaid decision has not been accepted by the department and he therefore did not allow the claim of assessee for deduction u/s. 54. The deduction was allowed by the AO as follows:-
“6. The assessee has got built up area of 3300 sq.ft. out of total built up area of 10000 sq.ft. The assessee has adopted Rs.3000/sq.ft. while determining the consideration received for the purpose of capital gains. By adopting the same rate LTCG in this case has been worked out as under: Sale consideration in Rs. 99,00,000 (by adopting Rs.3000/sq.ft. built up area)
Less: Cost of acquisition Cost Indexed FMV taken at 3000 as on 1.4.1981 per cent for 15 cents x 67% share transferred: 30150X711/100 for FY 30,150 2,14,367
Cost of improvement 1981-82 40000X711/100X2/3 26,667 1,89,603 ----------- Capital gains 94,96,030
Less: Exemption allowed on flat No.301 Measuring 1325 sq.ft. @ 3000 39,75,000 ------------- Taxable capital gains 55,21,030 -------------
In other words, the AO allowed exemption only in respect of one flat measuring 1325 sq.ft. u/s. 54 of the Act.
On appeal by the assessee, the CIT(Appeals) following the decision of the Hon’ble High Court of Karnataka in the case of Smt. K.G. Rukminiamma (supra) and the decision of the Madras High Court in the case of CIT v. B.R. Karpagam, TCA No.301 of 2014 dated 18.8.2014, held that assessee was entitled to claim deduction u/s. 54 in respect of two flats which are located on the third floor. Following were the observations of the CIT(Appeals):-
“5. After considering the facts of the case vis-a-vis the pronouncements, I am of the respectful view that the positioning / location of flats was considered only in the first decision, which was followed successively without considering proximity between the flats. Interpreting the first decision, it is very, clear that proximity between the number of flats is an important condition to be satisfied. Hence, in my considered view, the assessee will be entitled to the deduction u/s. 54F of the Act, with respect to Flat Nos. 301 & 302 only on the third floor. The third unit being on the first floor is completely disjointed and lacks proximity. It is ordered accordingly.”
In coming to the aforesaid conclusion, the CIT(A) has followed the decision of the Hon’ble High Court of Karnataka in the case of CIT v. D. Ananda Basappa, 309 ITR 329 (Karn), wherein a view was taken that if the two units are adjacent to each other, then they could be regarded as a residential unit.
Aggrieved by the order of CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal.
We have heard the rival submissions. In CIT & Anr. vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 : (2009) 309 ITR 329 (Kar) High Court of Karnataka has observed that expression "a residential house" should not be understood to indicate a singular number; assessee having purchased two residential flats, exemption under s. 54 was available, more so as these flats are situated side by side and the builder has effected modification of the flats to make it as one unit.
Following CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 : (2009) 309 ITR 329 (Kar), it was held in CIT & Anr. vs. Smt. K.G. Rukminiamma (2011) 239 CTR (Kar) 435 : (2011) 331 ITR 211 (Kar) that expression "a residential house" used in s. 54 should be understood in a sense that the building should be of residential nature and "a" should not be understood to indicate a singular number. Assessee was entitled to claim exemption under s. 54 in respect of four residential flats acquired by her.
The CIT(A) has followed the decision of the Hon’ble jurisdictional High Court and therefore the said order does not require any interference. The Assessee was therefore entitled to exemption u/s.54 of the Act in respect of the two flats which were both located in the third floor. We therefore find no merits in this appeal by the revenue and the same is dismissed.
In the result the appeal by the Revenue is dismissed.
Pronounced in the open court on this 7th day of August, 2015.