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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ASHWANI TANEJA
This appeal of the Revenue is directed against the order dated 10th October 2012, passed by the learned Commissioner (Appeals)–30, Mumbai, for the assessment year 2005–06.
The Revenue has raised following effective grounds:–
“(1) on the facts and in the circumstances of the case and in law,
Late Gopal V. Gorwani 2 the Ld CIT(A) has erred in holding that the sale consideration of the assessee is to be taken at Rs.4,07,50,0001- and ignored the non-monetary consideration worked out by the AO at Rs.93,50,000 without appreciating the following fats that; (a) A property viz. Gorwani House co-owned by the assessee and his brother was sold to Queens Villa Developers Pvt. Ltd by way of conveyance deed dated 25.1.2005 wherein the recital clearly provided for a total consideration of Rs.8.15 crores alongwith two residential flats on 9 and floor to be constructed by the developer were to have been provided to the assessee and his brother. (b) Accordingly, the AO has rightly worked out the non- monetary consideration of Rs.93,50,000/- after considering the cost of land as per the assessee's right to the land at pro rata basis valued at Rs.78,50,000/- to which cost of new flat of Rs.15,00,0001- has been added being Predetermined value of the cost of construction for each flat were to be apportion by the developer from the sale proceeds of Rs.8. 15 crore. (2) On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in rejecting the AO's conclusion that deduction is admissible to the extent of Rs.93,50,000 and reworked out the deduction u/s 54 of the I.T Act 1961 at Rs.2,24,86,440 stating that assessee is eligible for 4 floors and not the full investment ignoring the following fats that; (a) As per clause (c) (d) of page 2 and clause (2) of page of Deed of Partition dated 29.1.2005, the assessee's brother had already surrender his right, title, interest in the property vide mutual agreement dated 13.4.1996 for which the amount of Rs. 180 lacs has been paid by the assessee to his brother is nothing but the value of assessee's reinvestment in the new property for claiming deduction u/s 54 of the I. T Act 1961. (b) Further, assessee has retained a portion of the FSI for the newly constructed flats to be given by the developer and the assessee enjoy the right, title and interest in the residential flat which automatically disqualify assessee's claim. (c) Thus, the AO has correctly concluded that deal of providing one flat each to the assessee and the co-owner on 9th and 10th floor to be constructed by the developer which was part of sale consideration of Gorwani House valued at Rs.93,50,000 as investment made for the purpose of deduction u/s 54 of the I.T. Act 1961.”
Late Gopal V. Gorwani 3
2. In ground no.1, the issue in dispute is deletion of addition of ` 93,50,000, by the learned Commissioner (Appeals) on account of long term capital gain.
Briefly stated the facts are, the deceased assessee was an individual. For the assessment year under consideration, the assessee had filed its return of income on 31st August 2005, declaring total income of ` 9,39,140. The major source of income was from capital gain. On the basis of a survey conducted in the business premises of Gorwani Builders, a partnership firm where the assessee was a partner, assessment of the assessee for the impugned assessment year was re–opened under section 147. During the re–assessment proceedings, the Assessing Officer found that in the relevant previous year, the assessee along with his brother Shri Srichand Gorwani, who were the joint owners of a property named “Gorwarni House” sold it to Queen’s Villa Developers Pvt. Ltd. through a deed of conveyance dated 25th January 2005 for a recorded sale consideration of ` 8.15 crore. On a perusal of the deed of conveyance, it was noticed by the Assessing Officer that as per the arrangement made with the vendee, two residential flats in 9th and 10th floor are to be constructed by the vendee for the vendors. The terms of the deed further provided that amount of ` 15 lakh each towards the cost of construction of each land
Late Gopal V. Gorwani 4 is to be adjusted from the sale consideration of ` 8.15 crore. The Assessing Officer, on perusing the aforesaid terms of the agreement was of the view that flats to be constructed by the vendee on behalf of the co–owners is the non–monetary consideration received by them on account of sale of the property. He, therefore, quantified non– monetary consideration on pro–rata basis for each flat at ` 93,50,000 and treated it as part of sale consideration and computed long term capital gain accordingly. Being aggrieved by the addition of ` 93,50,000 to the sale consideration, the assessee challenged the same in an appeal preferred before the learned Commissioner (Appeals).
Before the first appellate authority, it was submitted by the assessee that as per the deed of conveyance both co–owners had agreed to sell the property for a total sale consideration of ` 8.15 crore. However, the agreement also provided that both the co–owners would retain the FSI required for construction of two residential flats having carpet area of 1,600 sq.ft. each. It was submitted, the deed of conveyance is, therefore, for balance area and the consideration of ` 8.15 crore received is also for the same and assessee’s share in it is ` 4,07,50,000.
The learned Commissioner (Appeals), after considering the submissions of assessee, observed, there cannot be any non–
Late Gopal V. Gorwani 5 monetary consideration as inferred by the Assessing Officer. On going through the terms of conveyance deed, the learned Commissioner (Appeals) observed, the assessee along with his brother had conveyed the property to the vendor with a stipulation that they would retain FSI of 1,600 sq.ft. in 9th and 10th floor of the building. Thus, it was held by the learned Commissioner (Appeals) that since one cannot sell to himself, non–monetary consideration considered by the Assessing Officer is erroneous. He further observed, the assessee’s claim is acceptable in view of the fact that while computing the long term capital gain, the assessee has not considered 1,600 sq.ft. FSI retained by him for the purpose of indexation which is evident from the valuation report submitted by the assessee. He, therefore, deleted the addition of ` 93,50,000, made to the capital gain by the Assessing Officer on account of non–monetary consideration. Being aggrieved, Revenue is in appeal before us.
The learned Departmental Representative submitted, flats received by the assessee was in exchange of FSI retained by him. Therefore, it is part of the sale consideration to the assessee. He submitted, when the assessee and his brother sold the entire property it cannot be said that they still retained FSI of 1,600 sq.ft. each. Therefore, the Assessing Officer has correctly considered cash
Late Gopal V. Gorwani 6 compensation as well as the cost of construction of flats forward sale consideration. The learned Departmental Representative submitted, there is a clause in the deed of conveyance which indicates that the assessee was not going to sell the FSI to any third party except the vendee which revealed that assessee and his brother wanted the vendee to construct the flat against FSI retained by them. Therefore, sale consideration would also include the cost of construction of flat. The learned Departmental Representative submitted, there is apparent contradiction in the finding of the first appellate authority as at one place, he observed that there is no non–monetary consideration received by the assessee whereas again in the same order he has observed that the deal of Gorwani House consisted of two parts, one in “cash” and other in “kind”. He, therefore, submitted, the addition made by the Assessing Officer should be restored.
The learned Counsel for the assessee submitted, the conveyance deed would make it clear that the FSI retained by the assessee and his brother was not part of the sale transaction. He submitted the sale consideration of ` 8.15 crore received by the assessee and his brother was on sale of the property excluding the FSI retained by them. He submitted that as per the terms of agreement, the vendee is to construct two flats in 9th and 10th floor utilizing the the FSI retained by Late Gopal V. Gorwani 7 the owners against cost of construction of ` 15 lakh for each flat which is to be adjusted from sale consideration of ` 8.15 crore. Thus, it was submitted, when the assessee has not sold the FSI and paid ` 15 lakh towards cost of construction of the flat it cannot be said that the flats were received by the assessee as non–monetary consideration.
We have considered the submissions of the parties and perused the material available on record. On a perusal of the assessment order, it is noted that the Assessing Officer has not discussed in detail why he considered the cost of construction incurred by the vendee for the construction of two flats as non–monetary consideration received by the assessee. On a perusal of the deed of conveyance dated 25th January 2005 between the assessee and his brother with vendee it is very much clear that as per clause (k) and (e) of the agreement, the vendors would refrain FSI required for construction of two flats in the 9th and 10th floor in the building proposed to be developed by the vendee. The sale consideration towards sale of the property excluding the FSI retained by the co–owners was fixed at ` 8.15 crore. Clause (m) of the agreement stipulates that the vendee has agreed to construct two flats on the 9th and 10th floor of proposed building by utilising the FSI retained by the vendors. Similarly, clause (n) of the agreement stipulates that vendors would pay the vendee ` 15 lakh
Late Gopal V. Gorwani 8 each towards cost of construction of each flat. Thus, reading of relevant clauses of the conveyance deed makes it clear, what assessee and his brothers have sold to the vendee for sale consideration of ` 8.15 crore is the property excluding the FSI retained by them. Therefore, it cannot be said that the assessee has sold or exchanged the FSI towards construction of two flats. This is further fortified from the fact that as per the terms of agreement, the vendors are to pay ` 15 lakh each towards cost of construction of the flats by the vendee. Thus, it would be clear from the aforesaid terms of the agreement that the construction of flat by the vendee is not free of cost, on the contrary, cost of construction is to be adjusted from sale consideration. Under these circumstances, it cannot be said that the assessee has received any non–monetary consideration on account of construction of flat by the vendee. Therefore, we do not find any infirmity in the order of the learned Commissioner (Appeals) in deleting the addition of ` 93,50,000.
The next issue as raised in ground no.2, relates to allowance of assessee’s claim of deduction under section 54 of the Act.
Briefly stated the facts are, in the return of income, the assessee computed long term capital gain on sale of Gorwani House at ` 3,07,11,800. Against such net long term capital gain, the assessee
Late Gopal V. Gorwani 9 claimed deduction under section 54 for an amount of ` 4,09,31,886, towards investment in construction of a new property. The Assessing Officer, after examining the claim of the assessee, held that as far as investment in new property is concerned, the same cannot be allowed as the portion of land falling into the share of assessee’s brother came to the possession of the assessee in the year 1996 and the consideration for transferring such share to the assessee was also fixed at ` 1.80 crore. The Assessing Officer observed, this fact has been clearly mentioned in the partition deed dated 29th January 2005. Thus, it was observed by the Assessing Officer that since the assessee had acquired the property in the year 1996, he cannot claim deduction under section 54 of the Act as it is not an investment in new property. The Assessing Officer, however, allowed deduction under section 54 by considering the value of two flats constructed by vendee by utilizing in FSI retained by the assessee. Being aggrieved of disallowance of deduction claimed under section 54, the assessee challenged the same before the learned Commissioner (Appeals).
Before the learned Commissioner (Appeals), it was submitted by the assessee that by virtue of partition deed executed on 29th January 2005, the assessee acquired his brother’s share in a plot of land for a agreed consideration of ` 1.80 crore. It was submitted, assessee’s
Late Gopal V. Gorwani 10 brother Shri Srichand Gorwani, was also reimbursed additional amount of ` 40,00,000, being the cost incurred towards purchase of TDR and ` 20,00,000 towards construction of a house. The details of investment made in the new house, as claimed by the assessee before the first appellate authority, was as under:–
Amount paid to brother (co–owner) ` 1,80,00,000 Stamp Duty ` 3,60,000 Registration ` 30,220 Amount paid for TDR ` 40,00,000 Amount paid for construction reimbursed ` 20,00,000 Cost of construction ` 1,65,41,466 Total reinvestment in the construction of the ` 4,09,31,886 new house at 21st Road Bandra
Referring to the CBDT circular no.667 dated 18th October 1993, 12. the assessee submitted that where the residential house is constructed within the specified period, the cost of such residential house should be taken to include the cost of plot also. It was submitted by the assessee, since the entire sale proceeds of the long term asset was invested by the assessee in construction / purchase of new residential house, he is eligible for deduction under section 54 of the Act. The learned Commissioner (Appeals), after considering the submissions of the assessee observed, the assessee along with his brother were developing a property in plot no.330 TPS–III, Bandra (West) as joint
Late Gopal V. Gorwani 11 owners. However, the assessee purchased his brother’s shares in the plot along with constructions vide agreement dated 29th January 2005 by utilising the sale proceeds of a property sold by him. Therefore, as the assessee has invested the capital gain in construction / purchase of a new house, he is eligible for deduction under section 54. The learned Commissioner (Appeals) further observed, though, in the return of income, the assessee has claimed deduction under section 54 for an amount of ` 3,37,29,660, but as per the occupancy certificate as well as municipal bills, assessee was occupying only top four floors along with his family members. He, therefore, opined that assessee would be eligible for deduction for four floors which it is occupying and accordingly restricted the deduction under section 54 to ` 2,24,86,440.
The learned Departmental Representative submitted before us when assessee’s brother has transferred his right over the property in the year 1996 for all practical purposes, it will be deemed that transfer of property has taken place in the year 1996. Therefore, assessee’s claim that it had invested in construction of new house by virtue of partition deed on 29th January 2005, is not acceptable. Alternatively, the learned Departmental Representative submitted, if at all the assessee is allowed deduction under section 54 for new construction, then it should be restricted to one flat.
Late Gopal V. Gorwani 12
The learned counsel for the assessee submitted, observation of the Assessing Officer that assessee had acquired the right over his brother’s shares in the property is totally misconceived as the partition was given effect only after execution of the partition deed on 29th January 2005. He submitted, though the registered partition deed dated 29th January 2005, refers to an oral partition between the assessee and his brother in the year 1996, but it also stipulates that physical partition of the subject property by metes and bonds was not done. He submitted, even the payment of ` 1.80 crore was made to Shri Srichand Gorwani on 29th January 2005. It was submitted, since Shri Srichand Gorwani had not relinquished his full right, title and interest over the property earlier and which was only done on execution of partition deed on 29th January 2005, further, as the assessee received possession of his brother’s shares after that, the investment made is to be treated as investment made in new property. As far as the contention of the Department that deduction under section 54 should be restricted to only one flat, learned counsel submitted, all the four floors are to be considered as one unit used by the assessee and his family members since it has a common kitchen. For this proposition, he relied upon the following case laws:–
Late Gopal V. Gorwani 13 i) CIT v. Smt. KG Rukminiamma (2011) 331 ITR 211 (Kar.); and ii) CIT v/s Geeta Duggal [2013] 357 ITR 153 (Del.).
We have considered the submissions of the parties and perused the material available on record. We have also examined the decisions relied upon by the learned Counsel for the assessee. As could be seen, the Assessing Officer has disallowed assessee’s claim under section 54 towards investment in acquiring his brother’s share in a separate property on the plea that the partition of the property between the assessee and his brother has taken place orally in the year 1996. Hence, it cannot be considered to be an investment made during the relevant previous year. However, on a perusal of the partition deed dated 29th January 2005, it is clear, though, it refers to the so called oral partition between the assessee and his brother in the year 1996 but at the same time it says that physical partition by metes and bonds was not done. It is also a fact that no consideration was paid by the assessee to his brother at the time of the said oral partition. Moreover, no transfer of immovable property can take place otherwise than by way of written registered agreement. There is also nothing on record to show that as a result of the oral partition Shri Srichand Gorwani, actually relinquished his right, title and interest over the property in favour of the assessee. Thus, when the partition between
Late Gopal V. Gorwani 14 the assessee and his brother was given effect by virtue of partition deed dated 29th January 2005 and as a result of such deed assessee’s brother relinquished his rights over the property on receipt of consideration and assessee acquired possession over the property for all practical purposes, transfer in terms of section 2(47) of the Act, deemed to have taken place in the previous year relevant to the assessment year under dispute. Therefore, the claim of the Assessing Officer that the assessee has acquired the right over the property in the year 1996 is not acceptable.
As far as the plea of the Department that deduction under section 54 is to be restricted to one flat, we have to observe that before the Departmental Authorities the assessee has taken a specific plea that all the four floors were under the occupation of assessee and his family members and there is a common kitchen. This plea was also accepted by the learned Commissioner (Appeals). As the aforesaid factual finding of the first appellate authority has not been controverted by the Revenue by bringing any cogent material on record, we do not see any reason to disturb the order of the learned Commissioner (Appeals) on the issue keeping in view the principles laid down in the decisions relied upon by the learned Counsel for the assessee. Accordingly, ground no.2 is dismissed.
Late Gopal V. Gorwani 15
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 20.11.2015