2019 (2) TMI 514 - AT - Income Tax

Tribunal affirms LTCG treatment & 54F deduction for buying adjacent flats

The Tribunal upheld the CIT(A)'s decision that the gains were Long-Term Capital Gains (LTCG) and the assessee was eligible for deduction under section 54F ... Deduction u/s 54F denied - capital gain treated as STCG - assessee had sold flat during impugned AY which was held for a prescribed period of less than 3 years and therefore, the resultant gains were STCG in nature - Held that:- Upon due consideration, we find that this is undisputed fact that the assessee acquired the right in specific Flat No. 702, 7th Floor, Aerial View CHS Ltd. by way of allotment letter dated 22/10/2008, as placed on record. The sale consideration was fixed at ₹ 3.40 Crores which was already paid by the assessee on 29/09/2008 i.e. much before issuance of allotment letter. The agreement for allocation of flat was executed vide agreement dated 15/12/2011 which was registered on 13/04/2012. This agreement is in respect of the same flat which was allotted to the assessee vide allotment letter dated 22/10/2008 and the agreement also contains reference of the allotment letter. The perusal of these facts reveal that the property proposed to be acquired by the assessee was specific & a unique property which was clearly identified in the allotment letter dated 22/10/2008 for which the agreement was executed on 15/12/2011 which was in furtherance of the stated allotment only. AO, in our opinion, got misled by the fact that right in the flat got vested in the assessee upon allotment and the same got exchanged with actual flat upon execution of the agreement and therefore, the holding period should have been counted from the date of the agreement. Allotment as well as execution of the agreement did not vest two different capital assets in the hands of the assessee which got exchanged with each other upon execution of the agreement rather the event of allotment as well as execution of agreement was part & parcel of the same transaction and only an improvement in ownership rights held by the assessee in the flat. This being the case, no infirmity could be found in the impugned order and therefore, this ground stands dismissed. Having said so, the resultant gains earned by the assessee would be LTCG only and therefore, we proceed to delve into the issue of assessee’s eligibility to claim deduction u/s 54F. As further fortified by the observation of first appellate authority that amendment to Section 54F was applicable only with effect from 01/04/2015 wherein the word 'a' was substituted with the word 'one' which shows that prior to the amendment, the exemption was not restricted to investment made in one residential house. Lastly, the aforesaid deduction, merely on the basis of stated certificate of BMC, in our opinion, could not be denied to the assessee particularly when the corroborative evidences stood in assessee’s favor. Resultantly, the overall factual matrix leads us to concur with the stand of first appellate authority - Decided in favour of assessee. Issues Involved:1. Applicability of CBDT Circular Nos. 471 & 672.2. Determination of the date of acquisition of the capital asset under section 2(47)(v).3. Eligibility for deduction under section 54F of the I.T. Act, 1961 for purchasing two residential houses.4. Reliance on the judgment of Bombay High Court in the case of Devdas Naik.5. Legality of adjoining two residential houses without prior permission of BMC.6. Appeal to reverse the order of the CIT(A) and restore the order of the Assessing Officer.Issue-wise Detailed Analysis:1. Applicability of CBDT Circular Nos. 471 & 672:The revenue contended that the CIT(A) erred in relying on CBDT Circular Nos. 471 & 672, which apply to investments in flats under the Self Finance Scheme of DDA / Coop. Societies / Institutions, whereas the assessee's allotment was made by a private entity. The Tribunal upheld the CIT(A)'s reliance on these circulars, noting that the allotment letter dated 22.10.2008 entitled the assessee to the right in a specific property, and the entire consideration was paid before the date of allotment. Thus, the assessee got the title to the property when the allotment letter was issued.2. Determination of the date of acquisition of the capital asset under section 2(47)(v):The revenue argued that the CIT(A) erred in accepting the assessee's view that section 2(47)(v) is with reference to transfer for the purpose of capital gain in the hands of the transferor and not to decide the date of purchase. The Tribunal found that the assessee acquired the right in the specific flat by way of an allotment letter dated 22/10/2008, and the agreement executed on 15/12/2011 was in furtherance of the stated allotment. Therefore, the holding period should be counted from the date of the allotment letter, making the gains Long-Term Capital Gains (LTCG).3. Eligibility for deduction under section 54F of the I.T. Act, 1961 for purchasing two residential houses:The revenue contended that the assessee purchased two residential houses instead of one, thus violating the conditions of Section 54F. The Tribunal noted that the assessee purchased two adjacent flats which were merged into one unit, evidenced by a certificate from the society and a single lease agreement. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 54F, citing various judicial pronouncements that supported the interpretation that deduction can be claimed for two flats if they are used as a single unit.4. Reliance on the judgment of Bombay High Court in the case of Devdas Naik:The revenue argued that the CIT(A) erred in relying on the judgment of the Bombay High Court in the case of Devdas Naik, which involved a single kitchen in two flats, whereas the assessee's case involved two kitchens. The Tribunal upheld the CIT(A)'s reliance on the judgment, noting that the flats were used as a single unit, and the amendment to Section 54F, which restricted the exemption to one residential house, was applicable only from 01/04/2015.5. Legality of adjoining two residential houses without prior permission of BMC:The revenue contended that the assessee illegally adjoined two residential houses without prior permission from BMC. The Tribunal found that the corroborative evidence, including the society's certificate and the single lease agreement, supported the assessee's claim that the flats were used as a single unit. The Tribunal concluded that the deduction under section 54F could not be denied merely based on the BMC's certificate.6. Appeal to reverse the order of the CIT(A) and restore the order of the Assessing Officer:The revenue prayed for the reversal of the CIT(A)'s order and the restoration of the Assessing Officer's order. The Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the gains were LTCG and the assessee was entitled to the deduction under section 54F.Conclusion:The Tribunal dismissed the appeal, upholding the CIT(A)'s order that the gains were LTCG and the assessee was entitled to the deduction under section 54F for the purchase of two adjacent flats used as a single unit. The Tribunal found no infirmity in the CIT(A)'s reliance on CBDT Circular Nos. 471 & 672 and the judgment of the Bombay High Court in the case of Devdas Naik. The Tribunal also concluded that the deduction could not be denied based on the BMC's certificate. The appeal was dismissed, and the order was pronounced in the open court on 05th February 2019.