2018 (4) TMI 1617 - AT - Income Tax

Tribunal grants deduction under Section 54F for acquiring 13 flats.

Smt. Nethravathi, Versus The Income-tax Officer, Warad – 2 (3) (3), Bengaluru.

Smt. Nethravathi, Versus The Income-tax Officer, Warad – 2 (3) (3), Bengaluru. - TMI Issues Involved:1. Eligibility for deduction under Section 54F of the Income Tax Act, 1961.2. Interpretation of 'a residential house' under Section 54F.3. Applicability of judicial precedents to the assessee's case.4. Contravention of conditions under Section 54F(3) regarding the sale of newly acquired assets.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 54F of the Income Tax Act, 1961:The assessee declared Long Term Capital Gain (LTCG) of Rs. 1,41,08,787/- and claimed deduction under Section 54F of the Income Tax Act, 1961, on the ground that she acquired 13 residential flats as her share under a Joint Development Agreement (JDA). The Assessing Officer (AO) disallowed the deduction, stating that Section 54F allows deduction only for 'a residential house,' and since the assessee acquired 13 independent flats, the claim was invalid. Additionally, the AO noted that the assessee sold two flats within the specified period, contravening Section 54F(3).2. Interpretation of 'a residential house' under Section 54F:The assessee relied on the Karnataka High Court's decision in CIT Vs. K.G Rukminiamma, which held that multiple flats received under a JDA could be considered 'a residential house' for the purpose of Section 54. The CIT(A) distinguished the facts of the assessee's case from the cited case, arguing that the flats in the assessee's case were independent units without any connectivity, unlike the interconnected units in the cited cases.3. Applicability of Judicial Precedents to the Assessee's Case:The Tribunal examined various judicial precedents, including the Karnataka High Court's decisions in K.G Rukminiamma and Khubchand M Makhija, and the Madras High Court's decision in CIT Vs. Smt. V.R Karpagam. The Tribunal found that the facts of the assessee's case were similar to K.G Rukminiamma, where multiple flats received under a JDA were considered 'a residential house.' The Tribunal noted that the decision in Khubchand M Makhija was distinguishable as it involved the purchase of two independent residential houses from the sale of one.4. Contravention of Conditions under Section 54F(3):The AO observed that the assessee sold two flats within the specified period, violating Section 54F(3). However, the Tribunal, considering the judicial precedents, held that the assessee's acquisition of 13 flats under the JDA constituted 'a residential house' and was entitled to the deduction under Section 54F.Conclusion:The Tribunal concluded that the assessee was entitled to deduction under Section 54F of the Income Tax Act, 1961, for all 13 flats received under the JDA. The appeal of the assessee was allowed, and the addition of Rs. 1,41,08,787/- made by the AO was set aside. The Tribunal's decision was in line with the judicial precedents, particularly the Karnataka High Court's decision in K.G Rukminiamma and the Madras High Court's decision in Smt. V.R Karpagam. The Tribunal held that the assessee's case squarely fell under Section 54F, and there was no capital gain chargeable to tax.