ITO WD 21(3)(1), MUMBAI vs. AJIT L VERMA, MUMBAI

1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in holding that the sum of Rs.2.16 crores received by the assessee without consideration, is liable to be assessed under the head “capital gains”” and not under the head income from others sources”;

A perusal of the above said grounds reveal that the revenue has taken two effective issues. The issue taken vide ground no.1 is as to whether the amount received by the assessee on transfer of Bungalow is to be assessed as capital gains or as income under the head “income from others sources”.

The brief facts of the case are that the assessee received sale consideration of Rs.2.16 crores from M/s Lake View Developers in exchange of the bungalow as per the agreement dated 29.8.2005. As per the said agreement, the plot with bungalow named as “Verma Niwas” was transferred by the assessee to the developer and in exchange of the same, the assessee received a sum of Rs.67,98,000/- + three residential flats valued at Rs.1,48,02,000/-. The total consideration thus was received of Rs.2.16 crores, which was treated by the assessee as Long Term Capital Gains (LTCG). The assessee’s claim was that he had become the owner of the said property in view of the “Will” of his father late Shri L H Verma and Late Taraben L Verma (mother of the assessee). The father of the assessee as per his “Will” bequeathed the property in favour of his wife with the stipulation that if she (mother of the assessee) pre-deceased Shri L.H.Verma (father), bungalow would devolve upon the assessee. However, Shri L H Verma, pre-deceased mother of the assessee hence bungalow devolved upon the mother of the assessee. A “Will” was also made by the mother of the assessee wherein she had intended that her properties will devolve upon her son and daughters i.e. assessee and his two sisters. However, during her life time, she and two sisters of the assessee in view of the last wishes of Shri L.H. Verma, made noting on the copy of the “Will” of the father relinquishing their all rights in the bungalow in favour of the assessee and hence the assessee became absolute owner of the property. Thereafter, the assessee exchanged the above property with the developer as mentioned above. Now, the contention of the Assessing Officer (hereinafter referred to as the AO) was that the assessee was only owner to the extent of 47 percent share in the bungalow. However, the assessee received consideration for entire bungalow, hence, the consideration, received more than his share in the property by the assessee, was not capital gain in the hands of the assessee. He accordingly, assessed the remaining 53% of the consideration received by the assessee in exchange of bungalow as income from other sources.

In appeal before the ld. CIT(A), the assessee furnished the relevant document and evidences along with the copy of “Will” and order of probate of the Hon’ble High Court and other evidences. The remand report was called upon by the ld. CIT(A) in this respect. The assessee also made request to the AO that if he has any doubt about the signature of the sisters on the copy of the “Will” relinquishing their right in favour of the assessee, he could get the same examined through Forensic Laboratory. The assessee also offered that to verify the facts, the AO should examine sisters of the assessee. However, the AO without making verification etc. simply opined that the sisters of the assessee had relinquished the right on latter date to the date of exchange agreement. He observed that in the date of transfer, the assessee was not the owner of the entire property. He, therefore, treated the income earned by the assessee in exchange of bungalow in excess of his 47% share, as income without consideration and assessed the same as income from other sources.

In appeal, the ld. CIT(A) after considering the evidences produced and filed by the assessee and the nature of transactions entered into by the assessee, observed that the assessee had received income in lieu of transfer of bungalow which was a capital asset. He observed that the AO had not made proper appreciation of evidence filed by the assessee. He observed that conjoint reading of the “Will” of L H Verma and Taraben L Verma clearly proves that the assessee was always having interest in “Varma Niwas”. Two sisters of the assessee and the mother of the assessee had relinquished their share in favour of the assessee and the assessee had received consideration in lieu of exchange of his rights in the bungalow as per exchange agreement dated 29.8.2005. Therefore, he held that the income earned by the assessee was to be assessed under the head capital gain.

We have considered the rival contentions and perused the record available before us. The undisputed fact is that the income was received by the assessee for transfer of bungalow under exchange deed dated 29.8.2005. The assessee was having right and interest in the bungalow, which was transferred. Under such circumstances, it cannot be said that the assessee had received the income without consideration. There is ample evidence on the file that ultimately the property i.e. bungalow in question devolved upon the assessee which was transferred by the assessee and the income earned by the assessee there from is to be assessed as capital gains. Even for the sake of arguments if we presume that the assessee had sold the property in which he had no title or interest but after having sold the property he got right or title in the property then also he is estopped under the law from saying that the sale agreement earlier entered by him cannot be acted upon or that the sale deed was invalid. Under such circumstances, the presumption under the law is that the assessee had sold his interest in the entire property even if he has acquired such ownership rights after the sale. We do not find any infirmity in the order of ld. CIT(A) on this issue and the same is upheld.

So far as the second issue is concerned i.e. regarding the claim of deduction u/s 54F of the Act, the AO observed that the assessee had purchased three flats and hence, as per the provisions of section 54F, the assessee was entitled to claim exemption in respect of one residential unit only. However,the ld. CIT(A) after considering the facts and evidences on the filed observed that all the three flats were interconnected and had only one entry, one kitchen they were used by the assessee as one unit. The electricity bill was also only one, though there were three agreements for purchase of three flats, however, the same were used as one unit. The ld. CIT(A) after perusing the floor plan and other record held that in fact, the assessee had purchased only one flat which was conveyed to the assessee vide three separate agreements for the purpose of convenience of the builder or for any other purposes as the case may be . He held that it was a single dwelling unit and the assessee thus was entitled to claim all the benefits arising out of section 54F of the Act. In view of the detailed discussion made by the ld. CIT(A) after proper appreciation of the evidence on the file, we do not find any reason to interfere with the order of the ld. CIT(A). There is no merit in the appeal of the revenue hence the same is dismissed.

In the result, the appeal filed by the Revenue is dismissed.