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 for purchasing two adjacent flats used as a single unit. The Tribunal supported the CIT(A)'s reliance on CBDT Circular Nos. 471 & 672 and the Bombay High Court judgment in a similar case. Additionally, the Tribunal found that the BMC's certificate did not justify denying the deduction. The appeal to reverse the CIT(A)'s order was dismissed, and the decision was rendered on 05th February 2019.

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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.

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