ITO, CHENNAI vs. GUMANMAL JAIN, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.414/Mds/2016. :- 2 -:

2013 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

‘’2.1 The learned CIT(A) erred in deleting the disallowance of claim u/s 54F by holding the assessee is eligible for the said claim even if the investment is made in more than one residential unit as the same is situating in the same door number relying on the decision of Jurisdictional High Court in the case of CIT Vs. V.R.Karpagam (2014) 50 Taxmann.com 55 (Mad.). 2.2 The learned CIT(A) ought to have seen the fact the assessee has invested in flats situating in different blocks which are separate from each other and the CIT(A) ought to have invoked the provisions of section 54F(2) of the Income Tax Act. 2.3 The learned CIT(A) failed to note the fact that even though the residential units are situating in the same door number, the units are having separate kitchen, electricity connection and property tax assessments and separate and distinct doors and separate Flat/door numbers within the residential complex. 2.4 The learned CIT(A) failed to verify the above facts while allowing the assessee's appeal.

2.5 It is hereby informed that the decision relied on by the learned CIT(A) in the case of CIT Vs. V.R. Karpagam (2014) 50 Taxmann.com 55 (Mad.) is not accepted by the department on merit and no further appeal was preferred only on account of low tax effect’’.

ITA No.414/Mds/2016. :- 3 -: was issued alongwith questionnaire. In compliance to notices and questionarie the ld. Authorised Representative filed information and appeared from time to time and gave clarifications on the issue. In the present financial year, the assessee alongwith his two sons entered in to joint venture agreement with M/s. Akash Housing Proprietor Smt. Ratan Bai, and others on 15.07.2010. The residential property proposed for development at No.57, Taylors Road, Chennai. The term and condition determined and sharing ratio of development between assessee and his two sons as the one party and M/s. Akash Housing Property (builder) as other party agreed to 70:30 share subject to overall constructed area not exceeding 50600 sq.ft. In the event of permission granted for construction beyond 50600 sq.ft. the ratio will be revised to 55:45 on per supplementary agreement dated 03.05.2011. The assessee in the Return of income claimed Long term capital gains arising on relinquishment of 31.056% share in the property as Nil after availing exemption u/s.54 of the act. The long term capital gains computed as �2,02,21,146/- after reducing indexed cost of land & building & demolition charges and was revised to �1,94,85,385/- on the basis of decision of Bombay High Court in the case of CIT vs. Manjula J. Shal in I.T. Appeal No.3378 of 2010. The Assessing Officer has denied exemption with elaborate findings and relied on the agreement and provisions of Act. The ld. Assessing Officer accepted jurisdictional High Court decision in the case of CIT vs. V.R.

ITA No.414/Mds/2016. :- 4 -:

Karpagam 50 Taxmann.com 55 (Mad) as applicable to the fact of the assessee’s case but on principle the decision was not accepted by the Revenue. Since the issue has not attained finality in the higher forum, the ld. Assessing Officer has deferred the ratio descend of jurisdictional High Court decision and denied exemption claimed by the assessee with other disallowances and assessed the income and raised remand. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

ITA No.414/Mds/2016. :- 5 -: house’’ for earlier assessments and plurality of residential units can qualify for earlier assessment years. The law applicable to assessee are pre- amended provisions. The ld. Commissioner of Income Tax (Appeals) gave macro view on the interpretation of provisions and legal opinion with dictionary meaning of ‘’one residential house’’ has allowed the appeal of the assessee with realistic findings at page No. 18 and 19 of his order as under:-

‘’Considering the facts of the instant case which are similar to the case decided as referred above, I come to the conclusion that assessee is eligible for exemption under section 54F of I.T Act 1961. In the assessment order assessing officer has also arrived at the same conclusion that assessee is eligible for exemption under section 54-F. The only issue is that assessee relying on the description of property given at Schedule A and has came to a conclusion that the residential property so constructed consist of more than one residential unit. Therefore assessee is not eligible for exemption under section 54F of the Income Tax Act, 1961. However, as per the allotment letter dated 14.03.2014 which was arrived consequential to the supplementary agreement dated 03.05.2011, the property in Schedule B was allotted to Shri. Gumanmal Jain and his sons as under:-

. S.NO FLOOR FLAT BUILT UP ALLOTTED TOTA 1 FIRST 4015 A 2 3365 B 1 3960 A 2 SECOND 3360 B GUMANMAL 3 C 3355 JAIN 1 THIRD B 1122 2 C 3360 1 B 1120 FOURTH 2 C 3355 27012

ITA No.414/Mds/2016. :- 6 -:

S.'NO FLOOR FLAT BUILT UP TOTA ALLOTTED 1 THIRD B 1122 DEEPAK 1 3855. A JAIN FOURTH 2 B 1120 , 6097 S.NO FLOOR FLAT BUILT UP' TOTA ALLOTTED 1 THIRD 3910 A VARUN JAIN 2 B 1122 1 FOURTH 1120 B 6152 TOTAL BUILT UP AREA ALLOTED 39260. ~ I therefore relying on the judgement of the Honorable Madras High Court in the case laws of Smt. V.R. Karpagam v. ITO No. 301 of 2004 against the order dt.7.3.2013 made in of the file of ITAT Cherinai Beneh,: CIT Vs Smt. V.R. Karpagam (2014) 50 taxmann.com 55 HC MADRAS brief gist " Section 54F of the Income-tax. Act, 1961 - Capital gains ,- Exemption of in case of ' investment in residential house (Meaning of residential house) - Assessment year 2007-0.8 - As per a development agreement, assessee-land owner parted from land and she .was to receive 43.75 per cent of built up area, which was translated. to 5 flats - Whether a residential house would include multiple flats/ residential units also, and, therefore, assessee. was eligible for exemption under section 54F in respect of all five flats - Held, yes [Para 10J [In favour of assessee" I therefore arrive to a conclusion that residential property so constructed which consists of more. than one residential unit in case of Sh. Gumanmal Jain described above is held to be one residential unit and therefore assessing officer is directed to grant exemption eligible to the assessee under section S4F of the IT Act 1961.

Aggrieved by the order of Commissioner of Income Tax (Appeals), the Revenue has assailed an appeal before Tribunal.

Commissioner of Income Tax (Appeals) has erred in deleting disallowance of claim u/s.54F of the act that the assessee is eligible for investment in more than one residential unit based on the jurisdictional High Court decision. Further, Department has not accepted the decision and contesting at Higher forum and reiterated the amended provisions u/sec.

54 and 54F on investment in any residential house as per Finance Act, 2014. The assessee has invested long term capital gains in more than one residential flat in the same block as per joint development agreement which is not in accordance with the provisions of law and prayed for set aside the order of Commissioner of Income Tax (Appeals).

ITA No.414/Mds/2016. :- 8 -: between both the parties the assessee was allotted flate alongwith his sons in the same block of building on different floors. The assessee complied the conditions for claim of exemption u/sec. 54 of the Act by investment in more than one residential property and approved by Commissioner of Income Tax (Appeals) in appellate proceedings. On perusal of provisions of Sec. 54F of the Act is a a inclusive definition on investment in residential house and the provisions of Sec. 54F are as under:-

‘’54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], 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 [two years] after the date on which the transfer took place purchased, 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, that 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— (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.414/Mds/2016. :- 9 -:

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.] Subsequently, there was a amendment by Finance Act, 2014 were the definition of ‘’any residential house’’ has been changed to ‘’one residential house in India’’, and applicable from assessment year 2015-16 effective from 01.04.2015.

‘’Words ‘’constructed, one residential house in India’’ shall be substituted for ‘’constructed, a residential house’’ by the Finance (No.2) Act, 2014, with effect from 01.04.2015’’.

The pre and post amended provisions are considered by the Jurisdictional High Court in the case of V.R. Karpagam (supra) and granted relief even though different flats were allotted to the assessee as any residential house. The ld. Commissioner of Income Tax (Appeals) has dealt exhaustively on the law and judicial decision of High Court and Tribunal and explanations filed by the assessee viz-a-viz and highlighted provisions and the factual matrix of the case. Considering the apparent facts of the case and provisions, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and uphold the same and ITA No.414/Mds/2016. :- 10 -: dismiss the appeal of the Revenue.

Order pronounced on Wednesday, the 11th day of May, 2016 at Chennai.