Income Tax Appellate Tribunal - Pune
Late Jameelunnisa Begum,, Pune vs Department Of Income Tax on 6 May, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member,
and Shri R.K.Panda, Accountant Member.
ITA.No.273/PN/2012
(Asstt. Year : 2005-06)
ITO, Ward-2(1),
Pune. .. Appellant
Vs.
Late Jameelunnisa Begum,
L/H A.K.M.Iqbal,
473/31-B, Gultekadi,
Pune - 411037. .. Respondent
PAN: AABPI9596N
Assessee by : Shri Kishor Phadke
Department by : Shri S.P.Sarangi
Date of Hearing : 06.05.2013
Date of Pronouncement : 28.05.2013
ORDER
PER SHAILENDRA KUMAR YADAV, JM:
This appeal has been filed by the assessee against the order of the CIT(A) on following grounds:
1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.
2. The learned Commissioner of Income-tax (Appeals) grossly erred in directing the Assessing Officer to allow the assessee deduction u/s 54 of the Income-tax Act, 1961, instead of confirming the disallowance of the assessee's claim of the said deduction.
3. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the agreement entered into by the assessee was an agreement for construction of residential and other properties by the developer on behalf of the assessee.
4. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the residential property allotted to the assessee was in lieu of the sale consideration receivable by the assessee towards the transfer of development rights to the developer and by no means, could it be said that the developer was constructing the property for the assessee.2
5. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that as per the agreement, the developer was entitled to enter into any agreement of sale, mortgage, lease or transfer in respect of his share of property which substantiates that the developer had acquired rights to deal with the said property without any encumbrance from the assessee.
6. In the aforesaid circumstances, the learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the assessee has thus purchased a residential property and had not constructed or entered into an agreement to construct, a house property. Therefore, she was required to possess the property within two years as per the provisions of sub-section (1) to sec. 54F of the Income-tax Act, 1961, which she failed to do.
2. The Assessing Officer disallowed the deduction u/s.54 of the Act as no evidence was produced to prove the fact that new flat was taken within 2 years from the date of sale of land. The relevant portion of the assessment order is reproduced as under:
26. Further is the calculation of long-term capital gain submitted vide letter dt. 3.12.2007, the assessee has claimed exemption U/s 54 to the tune of Rs. 33,83,190/-. The assessee was asked to produce documentary evidence in support of his claim. The assessee vide letter dt. 22.11.2007 has stated as under:
"We have claimed the deduction U/s 54 for the flat No. 202/203 neighboring two flat shown in the sanction plan are combined and made one fiat, which is already occupied by us for our residence. We have not received the completion certificate as yet. We have taken the possession of the said flat from the developer. We are enclosing herewith the telephone bill, Xerox of passport of my nephew, Mr. Viquar Mohammad and receipt from Blue Dart Express Ltd as address and occupancy proof.
27. Section 54 clearly states that in the case of capital, gain arising from transfer of a long term capital asset, the assessee has to purchase the new house within 2 years after the date on which the sale took place. The assessee has produced documentary evidence, which clearly indicates that the, assessee has taken possessions after the period of 2 years from the date of the sale i.e., as evident from the telephone bill where the date of installation is 7.12.2006. The receipt of the Blue Date Express is dated 15.11.2007 and the date of issue of passport in the case of the assessee's nephew Shri Viquar Mohammad is 8.2.2007. The assessee has only established the 3 fact that he has taken possession of the flat failed to prove that the flat was taken within 2 years from the date of sale. No other evidence is produced to prove possession of the said flat was taken within 2 years from the date of sale. Hence, exemption is denied and reliance is placed on the following case law CIT Vs. Mrs. Shahzada Begum (1988) 172 ITR 397 (AP) wherein it is held that the date of possession of the property purchased and not the date of registration of sale in favour of the assessee, in relevant for computing the prescribed time limit.
3. Matter was carried before the CIT(A) wherein the Ld. Authorised Representative has submitted that as per development agreement, she was to share the constructed area with developer. As such the understanding in substance between both the parties was that of construction of house property. Therefore, the period of 3 years should be considered in this situation. The relevant portion of submission of the assessee is reproduced below:
"2.Ground No. 3 -Exemption u/s 54 of the ITA, 1961 The assessee has claimed exemption of Rs, 33,83,190 being the cost of the residential flats acquired under the Development Agreement dated 21st May 2004. In this regard, the appellant has to submit as under. The same has been rejected by the learned AO on the analogy that possession the new house property, being two adjoining flats, was taken after two (2) years. The learned AO, at Para 27 of his order has observed that the telephone was installed at the new house property only on 7/12/2006 i.e. after thirty one (31) months. It will be relevant to note that as per clause no. 9 on page no. 10 of the Development Agreement dated 21st May 2004, the possession of the new house was to be extended within thirty (30) months (with a need based extention of 6 months).
a) Construction of the house and not Purchase - As per the development agreement, the appellant is to share the constructed area with the developer. The appellant is the landlord of the house property. The appellant has entered into the Development. Agreement with the covenant that 46% of the constructed area will belong to the appellant.
As such, the understanding in substance, between the both the parties vis-a-vis the residential flats, is that of construction of house property, Considering the substance of the transaction, the period of 3 years ought to be considered as available in the present situation. As the possession has been taken, within thirty one month (an undisputed fact), the exemption ought to be allowed on this proposition alone.
4b) Purchase of house and not construction -
Assuming without admitting that the new house property be considered as a purchased property and not constructed property, it is submitted, the delay is not attributable to the appellant. After all, the entire consideration receivable to the appellant for sale of the old house has been invested with the Developer for purchase of new House immediately. For any assessee investing funds into a new house and not getting possession within the prescribed time limit of two years, deduction u/s 54 should be allowed. Honorable Bombay High Court (in the case of Hilla Wadia -- 216 ITR 376) has held, that, when the funds are invested for the new property under a contract for acquisition of the new house property, the assessee starts assuming domain over the property. Further, once the domain is so assumed, the conditions u/s 54 need to be considered as fulfilled. Copy of the said decision is enclosed herewith.
c) CIT Vs. Shahzada Besum -- 172 ITR 397 (AP) -- The learned A O has relied on the said decision to refuse the claim of exemption u/s 54. As per the said decision, when the assessee has assumed possession of the new property within the prescribed time without conveyance/registration, the exemption u/s 54 was to be allowed. The Honorable AP High Court has held that when possession of the new property is taken within the prescribed period, domain and control is assumed and in such a case, registration need not be the touchstone for grant of exemption u/s 54 of the JTA, 1961. It is submitted; the true ratio of the said decision is against, the domain over the new properly. As clarified by the Honorable Bombay High Court, domain is assumed when substantial payments for the new property are made under an agreement. Principle underlying in both these decisions is the same, i.e. domain over property. As the domain over the new house properly is assumed anyway, the appellant may please be granted the appropriate relief u/s 54 of the ITA, 1961.
Kindly allow the appeal considering the above submissions and oblige."
4. In this background, after considering the submission of the assessee, the CIT(A) allowed the claim of assessee u/s.54 of the Act. Same has been opposed before us by way of arguments in grounds of appeal mentioned above. On the other hand, Ld. Authorised Representative supported the order of the CIT(A) and submitted that decision of the CIT(A) is supported by decision of the ITAT, Mumbai 5 Bench 'I', in the case of Jatinder Kumar Madan vs. ITO in ITA.No.6921/Mum/2010 order dated 25.04.2012, wherein it has been held as under:
"In this case, the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under s. 2 (47) of the Act. Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer. The acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. The provisions of s. 54 are applicable and assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer. Since cash compensation was part of consideration for transfer of the old flat and the assessee had invested the money in REC bonds, the exemption under s. 54 EC will be available. In any case, the long term capital gain computed by the AO including cash compensation as part of sale consideration is much below the cost of new flat and therefore, the cash component is also exempt under s. 54. As regards the completion of new flat within a period of 3 years, assessee has filed a copy of letter dated 30.5.2007 of the builder in which it has been mentioned that the builder had applied for occupation certificate and possession was to be given on 14.6.2007. This fetter was not available before lower authorities. The exact date of taking possession of the flat is also not clear. This aspect therefore, requires verification by the AO as to whether assessee had taken possession of new flat within a period of 3 years. Therefore, the claim of exemption under s. 54 is allowed subject to verification of above aspects by the AO after providing opportunity to the assessee.
Conclusion :
Exchange of old flat with new flat is transfer under s. 2(47) of the Act. The acquisition of a new flat to be constructed by the builder under development agreement in exchange of the old flat amounts to construction of new flat. Therefore, the provisions of s. 54 are applicable and assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer."
Accordingly, the Ld. Authorised Representative requested that the order of the CIT(A) be upheld.
65. After going through the above submissions and material on record, we find that the Assessing Officer disallowed claim of deduction u/s.54 on the ground that assessee failed to prove the fact that possession of the flat was taken within two years from date of sale has no evidence in this respect was brought before the Assessing Officer. The stand of the assessee has been that she acquired residential property in pursuance of development agreement dated 31.05.2004. As per this agreement, the assessee transferred the entire property at H.No.4-3-540 to the developer. She accepted the construction in respect of this property in the form of house and commercial area to be constructed by the developer. These properties stood transferred to the developer as on 31.05.2004. As per development agreement, developer was to actually construct residential and commercial property for the assessee, which was found apparent from the perusal of clause 5(a) and (b) of the development agreement, which are reproduced as under:
5.
(a) The Developer shall develop and construct the Residential-cum-Commercial Building Complex on the above said House properties.
(b) The Developers shall construct the entire complex with their own cost and resources in all respects. That, after construction of the entire Residential-cum-
Commercial Building complex the Landowners and the Development shall share the constructed areas with common areas such as staircase; open places, balconies, landing, terrace together with the undivided share of land in the following manner: -
Commercial Parking Residential
The Landowners (jointly) 45% 45% 41%
The Developer 55% 55% 53%
As per above understanding, the developer was entitled to sell or transfer to the prospective purchasers only its share of entitlement in accordance with the development agreement, which is evident from the condition mentioned in clause 15 of the development agreement. The clause 15 of the said development agreement reads as under:
7"15. That the Developer is entitled to enter into any agreement of sale, mortgage, lease or transfer with any of the prospective purchasers in respect of his share, entitlement as accordance with and inconsonance with this Development Agreement and can also receive part of full sale consideration money, etc., from such persons and can also execute separate receipts thereof pertaining to their share only."
6. In this background, developer was not entitled to enter into any agreement of sale in respect of the share of the assessee. Accordingly, the CIT(A) agreed with the contention of the assessee that agreement in substance was an agreement for construction of residential and other properties. Therefore, a period of 3 years was available to the assessee to take possession of the residential house. It is apparent that assessee was in possession of this property before 31.05.2007 i.e., before a period of three years from date of transfer of property at H.No.4-3-540 as according to the assessment order, telephone got installed on 07.12.2006 and Passport to one of the assessee's nephew was issued on 08.02.2007, i.e., before three years from the date of transfer of original asset. Therefore, the assessee fulfilled the condition in respect of construction of residential house within a period of three years from date of transfer of the original asset. Thus, the CIT(A) rightly found assessee to be eligible for deduction u/s.54 of the Act. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Mrs.Shahzada Begum (1988) 172 ITR 397 (AP), wherein assessee acquired possession of new residential house within period of three years from the date of transfer of original asset. Accordingly, the Assessing Officer was rightly directed to allow the deduction u/s.54 of the Act. This view is fortified by the decision in the case of Jatinder Kumar Madan (supra), wherein the issue was of capital gain exemption and assessee exchanged old flat with new flat and claimed exemption u/s.54 of the Act. The Assessing Officer was not justified to hold that assessee had neither purchased nor constructed the house property, therefore, assessee was not entitled for exemption u/s.54 of the Act. In second appeal, it was held that acquisition of new flat 8 under a development agreement in exchange of old flat amounts to construction. Accordingly, provisions of section 54 were applicable and assessee was held entitled to exemption if new flat had been constructed within a period of three years from the date of transfer. In view of above discussion, the reasoned order of the CIT(A) who has allowed the claim to the assessee u/s.54 needs no interference from our side. We uphold the same.
7. As a result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on this the 28th day of May, 2013.
Sd/- Sd/-
( R.K.PANDA ) ( SHAILENDRA KUMAR YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
gsps
Pune, dated the 28th May, 2013
Copy of the order is forwarded to:
1. The Assessee
2. The ITO, Ward-2(1), Pune.
3. The CIT(A)-Central, Pune.
4. The CIT-II, Pune.
5. The DR "B" Bench, Pune.
6. Guard File.
By Order
//TRUE COPY//
Private Secretary,
Income Tax Appellate Tribunal,
Pune.