Two adjacent residential apartments purchased by assessee constituted only one residential unit for exemption U/s 54F

 

 

Assessee utilized LTCG on sale of shares for purchase of two adjactent residential apartments and clalmed exemption under section 54F.AO held that exemption under section 54F was to be restricted to one residential house only.

 

Whole residential unit had one common entrance, one kitchen, one electricity meter, one piped gas connection, one property tax bill and one Society bill, Even though, property was purchased by way of two agreements, assessee received the same as one single unit. The whole building had been constructed simllarly. There was one residential flat on each floor and two separate agreements were entered into by the builder for each residential flat on each floor, Also, assessee submitted the copy of structural plan and society letter to substantiate purchase of only one residential unit. Thus assessee having Invested in one residential property was eligible for exemption under section 54F in entirety

 

The copy of the order is as under:               

 

IN THE INCOME TAX APPELLATE TRIBUNAL

“A”     BENCH, MUMBAI

 

BEFORE SHRI M BALAGANESH, ACCOUNTANT MEMBER &

SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No. 6510/Mum/2019

(A.Y: 2016-17)

 

DCIT  – 8(1)(2)	Vs.	Shri Ashok Santu
Room No. 625, 6th Floor		Bhavnani
Aayakar Bhavan,		22, New pushpamilan,
MK Marg, Mumbai –		67 Worli Hills, Worli,
400 020.		Mumbai – 400018
PAN/GIR  No.  :   AEUPB2016F
Appellant	..	Respondent

 

Appellant by      :	Mr.Mehul Jain.Sr.DR
Respondent by :	Mr.Ajit Jain.AR

 

Date of Hearing	18.02.2022
Date of Pronouncement	25.02.2022

 

O R D E R

 

  PER PAVAN KUMAR GADALE JM:

 

 

The revenue has filed the appeal against the order of the Commissioner of  Income Tax  (Appeals) – 14, Mumbai passed u/s 143(3)  r.w.s  250  of  the  Act. The revenue has raised the following  grounds  of appeal:

1. Whether, on  the  facts  and  in  the  circumstances  of  the case, and in the law the learned CIT(A) has erred in allowing deduction 54F in relation to the LTCG invested into two different residential flats despite of the  fact  that  the  said section  stood  amended  w.e.f.  01.04.20  15  making  it mandatory that deduction under  the  section  is  to  be  allowed for LTCG, to the extent of, utilized for  purchase  of  one residential House.

2. Whether, on the facts and in the  circumstances  of  the case, and in the law the learned CIT(A) has erred in not considering the intent and purpose of legislation behind the amendment brought to section 54F by virtue of which the expression “a residential house” has been replaced by the words “one residential house in India”

 

 

3. Whether, on  the  facts  and  in  the  circumstances  of  the case, and  in  the  law  the  learned  CIT(A)  has  erred  in construing  that  two  separate  flats  constitute  single residential house without calling for approved  architectural plan in that respect  and  not  appreciating  the  fact  that  the flats  were  originally  owned  by  two  different  persons  and each flat has separate sale deed, different sized carpet area, different  car  parking  and   separate  share  certificates  issued by society office.

 

 

4. Whether, on  the  facts  and  in  the  circumstances  of  the case,  and  in  the  law  the  learned  CIT(A)  has  erred  in  relying on  decision  of  Hon’ble  ITAT  in  the  case  of  Sanjay B  Pahariya Vs ACIT [ITA 6099/Mum/20 14]  and  Deepak  S  Bheda  Vs ACIT [23 taxmann.com 159  Mum]  and  Sudha  Gurtoo  Vs  ACIT [15  taxmann.com 231  Delhi] that have been  pronounced prior to  the  amendment  made  to  section  54F  of   the   Income  Tax, Act,  and  not appreciating decision of  jurisdictional High  Court in the case of Prakash Vs /TO [173 taxmann.com 311 (2008)].

2.  The brief  facts  of  the  case  are  that,  the  assessee is an individual and director in M/s Sapiens Technologies India Pvt Ltd. The assessee has filed the return of income for the A.Y 2016-17 on 28.07.2016 disclosing a total income of Rs.67,39,010/-. Subsequently, the case was selected  for  limited scrutiny under the criteria being “whether deduction from capital gains has been claimed correctly”. The Assessing Officer (A.O) has issued notice  u/s  143(2) and U/sec142(1) of the Act.The A.O found that the assessee has sold  shares  of  M/s  Ibexi  Solutions  Pvt Ltd of Rs.5,86,35,866/- and worked out the long term capital gains  of  Rs.5,65,61,162/-.Whereas,  the  A.O.  is of the opinion  that  the assessee  has  utilized the capital gains for purchase  of two residential properties No 801 and 802 in Kritika Apartments, Santcruz (West) Mumbai for a consideration of Rs. 10,16,19,000/- and issued show cause notice on 13.12.2018 referred at Para 4 of the A.O order. In compliance, the assessee has filed  detailed   letter dated 15-12-2018 explaining that the assessee has purchased  only one residential  property  and furnished the documents and clarifications referred at Para 5 of  the  order.  Further,  due  to  amendment  in Sec. 54F of  the  Act applicable from 01.04.2015 where the definition of a residential house is replaced by one residential house in India. Finally the A.O. has observed that the assessee  has  purchased  two adjacent houses and treated as one  residential house and cannot be accepted as per the amendmend made after 01.04.2015 and exemption u/s 54F of the Act is restricted to one residential  house only  and determined the long term capital gains of Rs. 2,48,85,866/- and assessed the total income of Rs. 3,16,24,870/- and passed the  order u/s 143(3) of  the Act dated 20.12.2018.

3. Aggrieved by the order the assessee has filed an appeal before the CIT(A). The CIT(A) considered the grounds of appeal, submissions of the assessee, findings of the AO and dealt on the provisions and observed at Para 4 of the order and granted the relief considering the judicial The CIT(A) has observed that the residential property  is one residential house and the assessee is entitled for exemption u/s 54F of the Act for investment made in residential house and allowed the assessee’s appeal. Aggrieved by the CIT(A)order, the revenue has filed an appeal before the Tribunal.

4.     At the time of hearing, the  Ld. DR submitted that the CIT(A)  has  erred  in  allowing  the  deduction  u/s 54F of the Act in respect of investment of long term capital gains invested in two  residential  houses.  And the post amended applicable from 01.04.2015, the deduction u/s 54F of the Act is restricted to only one residential house.  The  Ld. DR  further submitted that the CIT(A) erred in considering the two separate flats treating as a single unit without calling for the architectural  plan and prayed  for  allowing   the appeal. Contra, the Ld. AR supported the order of the CIT(A) and referred to the judicial decisions and the paper book in respect of purchase transaction of one residential property and substantiated with material evidences.

5. We heard the rival submissions and perused the material available on record. The sole crux of the disputed issue envisaged by the Ld.DR that the CIT(A) has erred in  granting exemption u/sec  54F of  the  Act in respect of two residential flats irrespective of amendment which has come into effect from 01.04.2015 and is applicable to the assessee for investment in  one  residential house  in  India. The  Ld. DR further submitted that the  flat  No  s  801  and  802 are two separate units and as per amendment only one    residential    unit    is         eligible for exemption u/sec54F of the  Act. Whereas, the  Ld.  AR  referred to the page 25 of the paper book explaining the transactions with respect to purchase of the property was disclosed and to  substantiate  that  the  payment was made by  one  person referred to  page 26  clause -4 as under:

“4. It is clarified that the said consideration payable by the Transferees to the  transferor for  the  purchase  of  the  premises has  been  borne  and  paid  by  the  Transferee  No.  1  alone  and that the name of the  Transferee  No.  2  has  been  added  for  the sake of convenience only.”

6.   Further, as per the registered deed of transfer dated 14.08.2015, it is clearly  mentioned  that  the name of the transferee No. 2 has been  added  for  the sake of convenience only and further at page 40 the consideration was mentioned at Para 3 to 4 as under:

 

3“  (a)  A  sum  of  Rs.   90,00,000/-  has  been  paid  by  the transferees to the Transferor, prior to the execution  here  to earnest  money,(the  payment  and  receipt  whereof   the transferor admits and acknowledges  and  of  and  from  the payment of the same  and  every  part  thereof  acquits,  releases and discharges the transferees each of them fore ever) and

 

(b) balance sum of Rs. 4,70,00,000/- has been paid by the transferees, simultaneously against the execution of these presents, making in the aggregate  Rs.  5,60,00,000/-  being  the full and final consideration payable by the Transferees to the Transferor  in  respect  of  the  premises,  (the  payment  and receipt  whereof  the  transferor  hereby  admits   and acknowledges and of and from the payment of the same and every part thereof acquits, releases and discharges the transferees (and each of them forever)

4. It is clarified that the said consideration payable by the transferees to the transferor  for  the  purchase  of  the  premises has been bone and paid by  the  transferees  in  the  following portion

Parties	Amount	%   of    share   in    the premises
Transferee No. 1	Rs. 3,89,40,000	69.54%
Transferee No. 2	Rs. 1,70,60,000	30.46%

7.    The main contentions of  the  Ld.DR  that  the  flat No. 801 and 802 are two separate flats and as per the amendment only one flat  is  granted  exemption  u/s 54F of  the  Act and  the  A.O. has granted exemption to flat No. 801. Whereas, the Ld. AR referred to  the plan at page No. 194 of the paper book which shows the 8th floor plan and page No. 185 to 187 clearly display the entrance and the  lobby. The  Ld.  AR  emphasizes that  it is only one residential  property  and  relied  on the letter issued by the housing society at page 185 of the paper book specifying that residential flat no 801/802 comprise of one residential flat with one entrance, one kitchen,one electricity meter and one  gas connection. We find the CIT(A) has dealt on the facts and provisions of  law. We  consider it  appropriate to  refer to the observations of the CIT(A) at page 11 to 15 as under:

4. Decision:

• I have considered the  submissions made by  the  appellant and the reasons recorded by AO. The first ground of  appeal  is general in nature, therefore, no separate adjudication is required in respect of the same.

• So far as the second ground of appeal is concerned, I  am in agreement with the contention of the appellant that it is entitled for deduction of indexed cost of acquisition while computing long-term capital gains, under provisions of section 48 of  the IT  Act, in respect of  the shares sold by it which are a long term The AG is directed to allow the same to the appellant. Accordingly, the second ground of  appeal is  treated as allowed.

 

 

• So far as the third ground of appeal is concerned, I am in agreement with the submission of the appellant that the whole residential unit is required to be treated as one residential house because it has one common entrance, one kitchen, one electricity meter, one piped gas connection, one  property tax bill and one Society Even though, the property was purchased by way of two agreements, the  appellant  has received the same as one single unit. The appellant has also pointed out that the whole building has been constructed similarly. There is one residential flat on each floor and two separate agreements have been entered into by the builder for each residential flat on  each  floor. Reliance for this  conclusion is placed on the  decisions  of  Hon’ble  ITAT,  Mumbai  in  the cases of Sanjay B Pahariya vs Asst CIT Mumbai [ ITA No. 6099/Mum/2014] and Deepak S. Bheda v/s ACIT [2012] 23 taxmann.com 159 (Mum.) and the decision of  Hon’ble ITAT,Delhi in the case of Sudha Gurtoo vs. ACIT  15 taxmann.com 231 [2011] which have been quoted by the appellant in his submission.

 

 

• I am  also  in  agreement  with  the  submission  of  the  appellant that  the  decision  in  the  case  of  Shri  Hemchandra  R  Gavankar Vs ITO, ITA no. 7451/Mum/2017 relied upon by the AG is not applicable to the facts of the case of the appellant because in that case the  property  was  not  in  the  name  of  the  assessee rather it  was  in  the  names  of  assessees  wife   and  adult daughter whereas the property under consideration  is  in  the name  of  the  assessee  and  his  wife.  For  this   reason,  the decision of jurisdictional High  Court in  the  case  of  Prakash  Vs ITO  173  taxman  311  (2008) is  also  not  applicable  to  the  facts of the case of the appellant.

• In the case of the appellant, the property is in the name of the appellant and  his wife and  out of  total purchase consideration of Rs. 11,87,50,000/- the purchase consideration paid by the appellant is Rs.10,16,90,000. Even if  the  •  fact  of  property being held in joint names is considered and the appellant is allowed benefit of 50% of the total purchase cost  of  the property, there would be no long-term capital gains taxable in the hands of the appellant. However, in view of the following decisions, I’m of the opinion that the appellant is entitled for deduction under section 54F of the IT Act to the extent of investment made by it in the jointly held residential house:

• The decision in the case of  Ravinder Kumar Arora vs  CIT 15 taxmann.com 307 (2011) by the Hon’ble Delhi High Court wherein Honourable High Court has held that

• “The Hon,ble High Court Judge  witnessed  that  all  the payments were made by the assesse  towards  a  residential house which was purchased jointly  in  the  names  of  the assessee and  his  wife.  Thus,  it  was  concluded  that  the assessee would be the real owner of the residential house in question. As per the aforesaid facts, the court was of  the  view that the conditions stipulated in Section 54F stand fulfilled. It would  be  treated  as  the  property  purchased  by  the  assessee in his name  and  merely because  he  has  included the  name  of his wife and the  property purchased in  the  joint names would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women.”

• The Appellantwould also like to place reliance on the  principal that for the purposes of Section 54F, the  new residential house need not  be  purchased  by  the  appellant  in  his  own  name  nor is it necessary that it should be purchased exclusively in assessee’s name provided that the  entire  investment  has  come out of  the  sale  proceeds  of  sale  of  long  term  capital  asset which  were held  by  assesseeand  that  there  was   no contribution from assessee’s wife or any other person.

• The decision in the case of Kamal Wahal Vs CIT 30 com 34 (2013) by Hon’ble Delhi High Court wherein the Honourable High Court in has held that

 

 

• “The assessee sold his joint property which gave rise to proportionate capital  gains.  He  claimed  deduction  under section 54F by  investing sale proceeds in  acquisition of  vacant plot  and  purchase  of  a  residential  house  in  the  name  of  his wife. It thus apoears to us that the predominant judicial view, including that of  this Court, is  that for the purposes of  Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name.  It  is  moreover  to  be  noted that the  assessee  in  the  present  case  has  not  purchased  the new house in the name of a stranger or somebody who is unconnected  with  him.  He   has  purchased  it  only  in   the   name of his  wife. There is  also  no  dispute  that  the  entire investment has come out of the sale proceeds and that there was no contribution from the assessee’s wife.”

• The Hon’ble Madras High Court decision in the case of V.Natarajan vs CIT 154 TAXMAN 399 (2006) wherein the Honourable High Court has held that ” It was admitted by the assessee that he sold a house  property  at  Bangalore. Therefore, it was clear that the assessee  owned  a  house property and sold the same. He also  admitted  that he purchased a property at Madras in  the  name of  his wife out of the money obtained by the sale of the property at Bangalore. Section 54 clearly says that if the assessee is the owner of the property, he is entitled to exemption. In the instant case, the assessee purchased  a  house property at  Madras,  in  the  name of his wife after selling the  property  at  Bangalore,  but  the same was assessed in the hands of the assessee. Hence, as correctly held by the Commissioner (Appeals) as well as the Tribunal, the assessee was entitled to exemption under section 54.”

• The decision of hAT, Bangalore  in  the  case  of  Bhatkal Ramarao Prakash Vs ITO[2019] 102 com  145 (Bangalore – Trib.)l[2019] 175 lTD 144 (Bangalore – Trib.), the head note of which reads as under: –

 

 

• i.     Section 2(4 7), read  with  sections 2(42A), 54  and  54F, of the Income-tax Act, 1961 – Capital gains – Transfer (Immovable property) – Assessment year 2015-16 – Assessee acquired a property from a building society under a lease-cum-sale agreement dated 22-3-2001 – As per  terms  of  agreement, assessee  had  to  construct  building  on  site  within  two  years from  date  of  agreement  and  assessee  could  not  alienate  site for a period  of  10  years  –  Assessee  complied  with  aforesaid terms of lea se-cum-sa!e agreement and  put up  construction on site on date of agreement and subsequently  property  was conveyed to assessee by society by registered sale deed dated 31-8-2014 – Assessee sold site as well as building constructed thereon under a sale deed dated 3-12-2014 and computed long-term capital gain  on  sale  of  this  property  by  taking  date of lease-cum-sale agreement , 22-3-2001  as  date  of acquisition of property –  He  invested capital  gain  in  acquisition of another property and claimed deduction under section 54F – Assessing Officer, however, construed date of acquisition of property  by  assessee  as   31-8-2014,   and   construed   capital gain on sale of property as a short-term capital gain and accordingly disallowed deduction claimed under section 54F – Whether assessee having paid cost of  site  and  being  in possession of property  as  lessee-cum-Agreement  holder  with right to obtain conveyance of  absolute  interest over  land  that was leased as early as  in  22-3-2001,  claim  of  assessee  that  it held property from 22-3-2001 had to be accepted – Held, yes – Whether  thus,  capital  gain  in  question  in  instant  case  had  to be  treated  as  LTCG  as  claimed  by  assessee  –  Held,  yes  [Paras 10, 11 and 14] [In favour of assessee]

 

 

• ii.      Section54F,  read  with  section2j 47j,  of  the  Income-tax Act, 1961 –  Capital  gains  –  Exemption of,  in  case  of  investment in residential house (One house property) – Assessment year 2015-16 – Assessee sold a house  site  in  previous  year  and invested sale proceeds in another  property  and  claimed exemption under section 54F –  Assessing  Officer  denied deduction on ground that as per  description  of  property purchased  by   assessee  it   consisted  of   two   doors  and   he   was of view that assessee purchased two  house  properties,  hence could  not  be  allowed  deduction  under  section  54F   –  However, it was found that entire  property  constitued  single  house  but was bifurcated with  two  door  numbers  for  ground  and  first floor with common entrance in ground floor  only  to  earmark share of beneficiaries – Whether therefore, assessee would be entitled to claim deduction under section 54F in respect of investment  –  Held,  yes  [ Paras  20  and  21][In  favour   of assessee]

• iii.      Section 54F of the Income-tax Act, 1961 – Capital gains – Exemption of in case of investment in a residential house (Purchase) – Assessment year 2015-16 – Whether to claim deduction under section 54F it is not necessary that new asset should be purchased in name of assessee only  –  Held,  yes  – Whether thus, where assessee purchased  new  asset  in  joint names of himself,

 

 

• iv.     Accordingly, it is held that the subject property is one residential house and the appellant  is  entitled  to  deduction under section  54F  of  the  IT  Act  to  the  extent  of  investment made by it in the residential The AO is directed to recalculate the total income of the appellant accordingly. For statistical purposes, the third ground of appeal is treated as allowed.

 

 

 

• v.       4.3 The fourth ground of appeal challenging the levy of interest under section 234B of the IT Act is  consequential  in nature and the AO is directed to  recalculate  the  interest chargeable under this section  after  giving  effect  to  this appellate order. For  statistical  purposes,  this  ground  of  appeal is treated as allowed.

 

 

• vi.       5        In  the result, the  appeal of  the appellant is treated as allowed.

8.     We find that the CIT(A) has considered the facts provisions of law, submissions, and judicial decisions and observed that the assessee has invested in one residential property. Further the Ld.AR has substantiated with the copy of structural plan and the society letter dated 8-04-2019 that it is only one residential unit.Whereas, the provisions of  sec54F  of the Act are beneficial provisions  and are  to be construed liberally. The  Ld.DR  could  not  controvert the finding of the CIT(A) with new cogent material information or evidence and the CIT(A) has passed a reasoned and logical  order.  Accordingly,  we do  not find any infirmity in the order  of the CIT(A)  and uphold the same and  dismiss the  grounds of appeal of the revenue.

9. In the  result,  the  appeal  filed  by  the  revenue   is dismissed.

Order pronounced in the open court on 25.02.2022.

   Sd/-                                                                                       Sd/-

     (M BALAGANESH)                                                         (PAVAN KUMAR GADALE)

ACCOUNTANT MEMBER                                                    JUDICIAL MEMBER

Mumbai, Dated 25.02.2022

KRK, PS

Copy  of  the  Order  forwarded   to  :

1. The Appellant
2. The
3. 3. TheCIT(A)
4. 4. ConcernedCIT
5. 5. fDR, ITAT, Mumbai
6. 6. Guard file.

//True  Copy//

 BY  ORDER,

( Asst.  Registrar)

ITAT, Mumbai