Income Tax Appellate Tribunal - Mumbai
Marie J Faria, Mumbai vs Department Of Income Tax on 31 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "B", MUMBAI
BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.2877/M/2011
Assessment Year: 2007-08
ACIT - 19(2), Smt. Marie Joseph Faria,
Room No.315, 3rd Floor, Plot No.12-B, Celine House,
Piramal Chambers, Vs. S.C. Chatterjee Marg,
Lalbaug, Santacruz (W),
Parel, Mumbai - 400 054
Mumbai - 400012 PAN: AAHPF 5878L
(Appellant) (Respondent)
Assessee by : Shri Mitesh Mehta, C.A.
Revenue by : Shri Asghar Zain V.P., Sr. A.R.
Date of Hearing : 15.01.2015
Date of Pronouncement : 31.03.2015
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 28.01.2011 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2007-08.
2. The Revenue has taken the following grounds of appeal:
"On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in directing to allow the exemption u/s 54 of the I.T. Act. claimed by the assessee for two flats, just because of there are no other flats on the floor where the assessee resides and both the flats are used by her and there is no need to structurally alter the flat, ignoring the facts that:-
a) The reply filed by the Co-operative Hsg. Soc., there is no internal connectivity between the two flats even the report submitted by inspector that the flats No.601 and 602 are not interconnected.2 ITA No.2877/M/2011
Smt. Marie Joseph Faria
b) The exemption u/s. 54 of the I.T. Act. in respect of capital gain arising on sale of property used for residence is only available towards investment in new house property in the time limit prescribed under the Act.
2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in directing to take the full value consideration as on 01-04-1981 towards the cost of acquisition without appreciating the fact that the assessee was the owner of property as on 26-04-1994.
3. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has failed to appreciate the fact that the Clause (b) of Section 2(42A) is only for determining the period held by the assessee for the purpose of treating the asset as a long term capital asset and Explanation (iii) to Section 48 clearly states that the Cost Inflation Index shall be from the first year in which the asset was held by the assessee.
4. The decision of the Special Bench of the ITAT in the case of Manjula J. Shah ITA No.7315/M/2007 dated 16.06.2009 has not been accepted by the Department.
5. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored.
6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
3. A perusal of the above grounds of appeal reveals that the Revenue has agitated the action of the Ld. CIT(A) for allowing claim of exemption under section 54F in respect of two flats purchased by the assessee and further in allowing indexation taking the cost of acquisition of the property as per the fair market value of the said property as on 01.04.81.
4. Rival contentions have been heard. Brief facts relating to the issue under consideration are that the assessee an old lady, during the year, has claimed exemption of long term capital gain amounting to Rs.3,47,94,461/- on account of sale of her rights in the inherited house. The entire capital gain on sale of inherited house was claimed as exempt as the assessee had invested entire consideration within the time limit specified under section 54 of the Income Tax Act for purchasing two adjacent flats on the same floor converting 3 ITA No.2877/M/2011 Smt. Marie Joseph Faria the same into a single residential unit. The Assessing Officer (hereinafter referred to as the AO) disallowed the exemption under section 54F in relation to one flat on the ground that the exemption under section 54F is available only in respect of purchase of one flat and not for two flats.
5. The Ld. CIT(A), however, allowed the claim of exemption claimed by the assessee under section 54F observing as under:
"2 5 . I h a v e c a r e f u l l y g o n e t h r o u g h t h e a s s e s s m e n t o r d e r , t h e submissions made by the appellant and the facts of the case. I do concur with the view of the AO that exemption is available only in respect of a residential house but in view of the case of Sushila M. Jhaveni reported in (2007) 107 lTD 321 mentioned supra, the appellant becomes entitled for exemption in respect of two residential houses if they are contiguous having common passage, common kitchen etc. The essential condition is that where more t h a n o n e u n i t i s p u r c h a s e d w h i c h a r e a d j a c e n t t o e a c h o t h e r a n d a r e converted into one house for the purpose of residence then it would be a case of investment in one residential house and consequently the assessee would be entitled to exemption. In the case of the appellant two units are adjacent to each other having common kitchen and the units are converted into one house for the purpose of residence. In fact on the entire sixth floor, there are only two flats belonging to the appellant and no other flat is there. So much so the entire flat belongs to the appellant. The A.R. of the appellant has stated that there was no requirement to structurally change the flats for the purpose of converting them into one house. It is further stated that it is upto the appellant to decide how and in what manner both the flats are to be u s e d a s o n e u n i t o f r e s i d e n c e . W h e t h e r t h e f l a t s a r e r e q u i r e d t o b e st r u ctu r a l l y ch a n ge d o r to t r e a t th e m a s o ne h o u se wi t h ou t m a ki n g a n y structural change is upto the appellant as the appellant is the best judge of her situation. In this case specially, since the entire floor belongs to the appellant, there is no need for the same and as long as it is convenient to the appellant to use both the flats as one residential house for herself and her family, there is no reason to think it otherwise. The appellant has also filed an affidavit to this effect that both the flats are used as one common residence b y t he fam i ly m embe rs. Th e sa id aff ida vit was f il ed bef or e the a sse ssin g o f f i c e r d u r i n g t h e c o u r se o f a s se s s m e n t p r o ce e d i n g s . T h e A . R . o f t h e a p p e l l a n t a l s o r e l i e d u p o n t h e r e c e n t d e c i s i o n o f H o n . H i g h C o u r t o f Karnataka in the case of Commissioner of Income Tax .& ANR v/s. Smt. K.G. Rukminiamma in (2010)48 DTR 377.4 ITA No.2877/M/2011
Smt. Marie Joseph Faria
26. The Ld. AR further relied upon the decision of the Commissioner of Income Tax v/s D. Anand Bassappa reported in 309 ITR 329. On facts, it is shown by the appellant that the apartments are situated side by side. The builder has also stated that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. The fact that at the time when the inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that the apartment is not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could have narrated the purchase of two p r e m i s e s a s o n e u n i t i n t h e s a l e d e e d i s n o t t h e g r o u n d t o h o l d t h a t t h e assessee had no intention to purchase the two flats as one unit Thus, in my c o n s i d e r e d v i e w d e d u c t i o n i n r e s p e c t o f b o t h t h e s e f l a t s i s a l l o w a b l e t o the appellant in accordance with the provisions of sec. 54.
27. It is held by Mumbai Bench of ITAT in the case of Manjula J Shah reported in 126 TTJ 145 (2009) (Mum) (SB) that "if all the relevant provisions are read together, the position which emerges is that there is no capital gain chargeable to tax as a result of transfer of a capital asset under gift since the transaction involving a gift of capital asset is not regarded as transfer for the purpose of sec. 45. However, where such capital asset becoming the property of the assessee under gift is subsequently transferred as envisaged in sec. 45, the capital gain arising from such transfer is made chargeable to tax and having regard to the specific provisions contained in the Statute, the cost and date of acquisition of the previous owner are adopted as cost and date of acquisition of the assessee for the purpose of computation of income from such capital gains. The entire capital gain including the capital gain which would have been chargeable as a result of transfer of a capital asset by the previous owner to the assessee as a result of gift but for the provisions of sec. 47 thus is made chargeable to tax at the second stage when the capital asset becoming the property of the assessee under gift is transferred by him. This is the scheme of the Act as laid out in the relevant provisions which treat the cost and date of acquisition of the previous owner as the cost and date of acquisition of the assessee.
28. It wa s also hel d by Chandigarh SMC Bench in the ca se of Mrs Pushpa Sofat reported in (2004) 89 TTJ 499 that "indexed cost of acquisition of the property inherited by assessee from her father which was acquired by him much before 1981 has to be worked out by taking the cost as on 1st April, 1981 as 100 and applying the cost of inflation index of the accounting year when the property was sold.
2 8 . Co n s i d e r i n g a l l t h e a b o ve f a ct o r s a n d a f t e r go i n g t h r o u gh t h e decision in the case of Manjula J Shah, am of the considered view that the case of the appellant is covered by the case of the jurisdictional ITAT of Manjula J. Shah. I also find that in the case of Manjula J Shah, the case of Kishore 5 ITA No.2877/M/2011 Smt. Marie Joseph Faria Kanungo which is in Department's favour has been overruled. In the case of Manjula J Shah, the Hon'ble Members while overruling the d e ci si o n o f D i vi si o n Be n ch o f M u m b a i T r i b u n a l i n t h e ca se o f K i sh o r e Kanungo 107 lTD 437 have held as under:-
"We, therefore, do not agree with the view taken of the Division Bench of this Tribunal in the case of Kihore Kanungo (supra) while deciding a similar issue against the assessee by adopting such liter interpretation of Explanation (iii) to Section 48."
29. It is seen that the assessing officer has failed to interpret t h e legal position vis-à-vis the facts of the assessee. The assessee is indeed entitled to exemption u/s. 54 in respect of both the flats; though purchased on two different dates since it is used as a single residential unit. The assessee has inherited the property which was purchased before 1 st April, 1981 and is also entitled to replace the fair market value as on 1 April, 1981 as the cost of acquisition. The assessee is also entitled to cost inflation index and therefore the assessing officer is directed to recalculate the long term ca p i t a l ga i n e xe m p t i o n u / s. 5 4 , a l l o w t h e i n ve st m e n t i n t wo f l a t s, t a ke the fair market value as on 1 s t April, 1981 as the cost of acquisition, and a l so gi v e t h e b e n e f i t o f c o st i n d e x a t i o n t o t h e a s se s se e . T h e gr o u n d s of appeal are allowed.
In the result, appeal of the appellant is allowed."
6. We have considered the rival contentions of both the parties. We find that the Ld. CIT(A) has given a categorical finding that the assessee had purchased the entire floor of the building there being only 2 flats on one floor. Since there was no other flat on the said floor and the entire floor belonged to the assessee, hence there was no requirement to the assessee to make any structural change in the flats for converting them into one house. The Ld. CIT(A) observed that the assessee had made investment in two adjacent flats on the same floor which were used as a single residential house with common kitchen. After following the decision rendered by the Special Bench of the Tribunal in the case of "Sushila M. Jhaveri" (2007) ITD 327 (Mum) the Ld. CIT(A) has allowed the exemption u/s 54F to the assessee in relation to the two flats purchased on the same floor and being used by the assessee as a single residential unit. The detailed finding recorded by Ld. CIT(A) has not 6 ITA No.2877/M/2011 Smt. Marie Joseph Faria been controverted by the Revenue by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of Ld. CIT(A) for allowing exemption u/s 54F in respect of two adjoining flats situated at Wing-A and combined to make a single unit with common entrance and kitchen.
7. Admittedly, the assessee has inherited the property which was purchased by the original owner before 01.04.81. Therefore, the Ld. CIT(A), by following the decision of special Bench of ITAT in the case of "Manjula J Shah" (2009) (126 TTJ 145), held that the assessee is entitled to the indexation by taking the cost of acquisition of the property as per fair market value of the said property as on 01.04.81. We do not find any infirmity in the order of the Ld. CIT(A) in this respect also. There is no merit in the appeal of the Revenue and the same is accordingly dismissed.
Order pronounced in the open court on 31.03.2015.
Sd/- Sd/-
(B.R. Baskaran) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 31.03.2015.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.