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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI N.K.BILLAIYA, A.M & SHRI PAWAN SINGH, J.M
O R D E R
PER PAWAN SINGH, JM:
The present appeal is filed by the assessee against the order of CIT(A)-30, Mumbai dated 31.07.2012 in respect of Assessment Year (AY) 2009-10 on the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Commissioner of Income -tax (Appeals) was not justified in holding that flat no.101 and 801 are to be treated as separately investments and hence, allowing deduction uls.54 in respect of one flat no. 801.
2. On the facts and in the circumstances of the case and in law, the Commissioner of Income -tax (Appeals) was not justified in confirming the cost of construction of the flat at Rs. 62,26,684/- as worked out by the A.O. against Rs.77,36,540/- for the purpose of setoff against the long term capital gain u/s. 54 of the Income-tax Act,1961
3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) was not justified in not granting deduction of rent paid, brokerage, etc. of Rs. 6,36,280/- against the rent received towards the alternative accommodation.
4. WITHOUT PREJUDICE - The appellant submits that the cash compensation received from the Developer for alternative accommodation cannot be considered as revenue receipt and not liable to tax as the same is outside the ambit of income u/s 2(24) of the Act. 5. The appellant craves leave to, add to, alter or vary the grounds of appeal at or before the hearing of the appeal.
2. The brief facts of the case are that the assessee filed his return of income on 30.09.2009 declaring total income for Rs. 41,86,320/-. The return of income was selected for scrutiny, after serving the statutory notice and giving opportunity, the Assessing Officer (AO) restricted the claim of deduction u/s. 54, to one house only i.e. flat No. 801, and computed the capital gain in respect of another flat and further added a sum of Rs. 15,50,000/- as taxable income u/s 56 of the I.T. Act, and initiated penalty proceeding u/s 271(1)(c) of the Act in the assessment order dated 26.12.2011, against which an appeal was filed before the CIT(A) .
3. Ld. CIT(A) while disposing of the appeal filed by the assessee confirmed the action of AO in holding that assessee is entitled for deduction u/s. 54 in respect of one house only and for the second addition of Rs. 15,50,000/- made by AO, sustained to the extent of Rs. 6,36,280/- in the impugned order dated 25.01.2012 against which the present appeal is filed before us. 4. We have heard the Authorised Representative (AR) of the assessee and Departmental Representative (Dr) of the revenue and perused the material available on record. The AO while making the assessment has observed that assessee and co-owners of the property at Matta House for which the assessee entered into builder agreement with other co-owners of the property and received consideration of Rs. 3,99,00,000/- and further the assessee was given the two residential flat vide flat no. 101 admeasuring 819 Sq. Ft. on the 1st floor and flat no. 801 admeasuring 1460 sq. ft. on 8th floor with 2 stilt parking and 2 open parking in lieu of granting development right to the developer M/s Elite Corporation and further compensated the assessee of Rs. 15,50,000/- in respect of alternate accommodation. 5. By AO the confirmation was sought from M/s Elite Corporation about the development agreement, wherein the developer vide its reply dated 25.11.2011 has confirmed about the monetary compensation paid to the owners (including the assessee) and compensation of Rs. 15,50,000/- for alternate accommodation and also confirmed that assessee is entitled for 2 flats bearing no. 101 and 801 total admeasuring 2279 sq. ft. 6. After considering the submission and reply/confirmation of builder, the AO observed that assessee has not declared value of alternate accommodation vide flat no. 101 and flat no. 801 for which the cost of construction has not been valued by the developer at Rs. 1,20,76,421/- and further observed that assessee has claimed the entire value in term of gift, title and interest as a cost of consideration, computation of capital gain in respect of granting development right and interest in respect of 2 residential flat should have been considered as a cost of the construction valued by developer as over and above monetary compensation declared by the assessee and allowed deduction u/s 54 only in respect of flat no. 801 and calculated Long Term Capital Gain(LTCG) after taking cost of consideration at Rs. 1,34,50,000/- with non-monetary compensation of 2 flats and calculated LTCG of Rs. 58,49,373/-. In respect of alternative accommodation received the assessee has offered income from other sources and seek set of Rs. 5,94,000/- on account of rent paid Rs. 27,280/- brokerage and Rs. 15,000/- rent paid brokerage, however the AO has not allowed the set off and added the entire amount of Rs. 15,50,000/- as taxable u/s 56 of the I.T. Act.
7. While arguing for ground No. 1, ld. AR of the assessee has relied upon the judgment of Hon’ble Karnataka High Court in CIT vs. Chand M. Makhija in dated 18.12.2013 wherein it has held: “Whether letter ‘a’ in expression ‘a’ residential house’, used in section 54 should not be construed as meaning singular, but being an indefinite article, said expression should be read in consonance with other words ‘buildings and lands’, therefore, ‘a residential house’ also permits use of plural by virtue of section 13(2) of General Clauses Act ”
“17. It is clear that the assessee was not attempting to evade tax. In fact, after purchasing two residential houses, still there remained unutilized capital gain, which he has offered for tax. Therefore, as held in the aforesaid Rukminiamma's case, the context in which the expression "a residential house" is used in Section 54 makes it clear that it was not the intention of the legislature to convey the meaning that it refers to a single residential house. The letter "a" in the context, which is used, should not be construed as meaning singular, but being a indefinite article, the said expression should be read in consonance with the other words "buildings and lands" and therefore, the singular "a residential house" also permits use of plural by virtue of Section 13(2) of the General Clauses Act.
Therefore, we are of the view, in the facts and circumstances of this case, the acquisition of two residential houses by the assessee out of the capital gains falls within the phrase "residential house" and accordingly, the assessee is entitled to the benefit conferred under Section 54(1) of the Act. However, we make it clear that while interpreting this word, the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held "a" cannot be read as singular, it also cannot be read as multiples and so as to avoid paying tax under Section 45 of the Act. Therefore, in the facts and circumstances of this case, we answer the first substantial question of law raised in favour of the assessee and against the Revenue”.
The AR of the assessee further relied upon the circular no.1 of 2015 of CBDT with regard to capital gain exemption in cast of investment in residential house property. Circular are reproduced for the sake of convenience. 20. Capital gains exemption in case of investment in a residential house property 20.1 The provisions contained in sub-section (1) of section 54 of the Income-tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act. 20.2 The provisions contained in sub-section (1) of section 54F of the Income- tax Act, before its amendment by the Act, inter-alia, provided that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub- section (1) of section 54 of the Income-tax Act has been amended to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. 20.4 Similarly, sub-section (1) of section 54F of the Income-tax Act has been amended to provide that the exemption is available if the investment is made in one residential house situated in India. 20.5 Applicability: -These amendments take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.
The comprehensive reading of circular 1 of 2015 made it clear that the exemption of LTCG is also available if investment made in more than 1 residential house.
In view of the above discussion, judgment of Karnataka High Court and circular 1 of 2015 of CBDT, the assessee was not liable for LTCG against flat no.101 and the addition made by the AO which was sustained by the CIT(A) is deleted. 11. Since ground no.1 of appeal has been allowed by us and holding of 2 flat are not to be treated as separate investment for allowing deduction u/s 54 of the Act, hence, ground no.2 has become infructuous. 12. Next ground of appeal
for our consideration is addition of Rs. 15,50,000/- which was sustained to the extent of Rs. 6,36,280/- against the amount received on account of alternate accommodation, the ld. CIT(A) while dealing with this addition has held that the assessee has not been able to prove any nexus between the rent received of Rs. 15,50,000/- and expenses claimed of Rs. 6,36,280/- and further held that in absence of such nexus, the expenses so claimed cannot be allowed, however, the same was sustained to the extent of Rs. 6,36,280/-. The ld. AR of the assessee drawn our attention to page 11 of the development agreement wherein it has been clearly mentioned that the assessee is entitled to Rs. 15,50,000/- in temporary alternative accommodation to be acquired by the owners through their own efforts and their own choice.
13. Since this compensation of Rs. 15,50,000/- has been shown as income under the head “Income from other Sources”, therefore, the assessee is entitled for deduction of expenses incurred for earning this income.
14. We accordingly, direct the AO to allow the deduction of expenses claimed, on account of (i) rent paid Rs. 5,94,000/- (ii) Brokerage Rs. 27,280/- and (iii) Rent paid brokerage Rs. 15,000/-
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 23rd December 2015.