2005 (10) TMI 213 - AT - Income Tax

Tribunal Confirms Exemption Eligibility for Second Flat Purchase; Upholds Deductibility of Brokerage Payment.

Assistant Commissioner Of Income-tax, Circle - 9 (1), Bombay. Versus Leela P. Nanda.

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on all grounds. It affirmed the assessee's eligibility for exemption under section ... Deduction u/s 54 - Capital Gains - Two adjacent flats were purchased by the assessee for self-residence and converted into a single residence as the exemption u/s 54 is available for purchase of a residential house - investment made by way of adjustment of loan - deductible payment of brokerage to two brokers while working out the capital gain. HELD THAT:- The property in question is Unit No. 1201 which was registered in the name of Rajiv Nanda and the assessee. The funds were provided by the assessee as loan to Shri Rajiv Nanda for purchase of this flat. The assessee had purchased Unit No. 1202 from Rajiv Nanda by agreement dated 3-5-1991 and had absolved him of the loan. It was also agreed between them that due to the close relationship between the two parties, the premises shall continue to stand in both the names. The original documents and the possession of Unit No. 1202 was handed over to the assessee. The assessee had acquired the domain, substantial interest and possession of flat. In view of the above noted judgments, as relied by the assessee, it cannot be said that the assessee had not purchased the Unit No. 1202 within the meaning of section 54(1). As such, we hold that the assessee had purchased Unit No. 1202 within the time prescribed u/s 54. Flat Nos. 1201 and 1202 were adjacent flats which were converted into a single residence by the assessee and were being used for the sell-residence of the assessee and family members. It has been held by Hon'ble Allahabad High Court in the case of Shiv Narain Chaudhari v. CWT (Lucknow) [1977 (4) TMI 34 - ALLAHABAD HIGH COURT] while explaining the meaning of house for exemption u/s 51(iv) of WT Act, that self-contained dwelling unit which are contiguous and situated in same compound and within common Boundaries and having unity of structure could be treated as one house. In our view two contiguous flats converted into a single residential premise should be treated as a residential house for the purpose of section 54. As there is no dispute that the purchase of Flat Nos. 1201 and 1202 has been made within the prescribed time and for the purpose of self-residence, the deduction has been correctly allowed by the CIT(A). The order of the CIT(A) is upheld. As such first and second ground of the appeal are dismissed. Payment of brokerage to two brokers - We are of the view that the said payment made to the brokers was an expenditure incurred wholly and exclusively in connection with transfer of the asset as provided u/s 48(1). Hence the same was deductible while working out the capital gain. The expenditure was for the services of the brokers, which resulted in arranging the sale of the flat to Parikh family. The assessee was not able to sell the flat to Parikh family because it was acquired by the appropriate authority but the brokerage had become due and was paid by the assessee. The expenditure on brokerage was incurred by the assessee in connection with the sale of the flat. We uphold the finding of the CIT(A) and decline to interfere the same. The third ground is dismissed. The appeal of the Revenue is dismissed. Issues:1. Exemption under section 54 for the cost of the second flat purchased by the assessee.2. Entitlement to exemption under section 54 on the purchase of a second residential house.3. Claim for payment of brokerage amounting to Rs. 1,01,000 to two brokers.Analysis:1. The appeal filed by the Revenue challenges the order of CIT(A)-XI, Bombay, regarding exemption under section 54 for the cost of the second flat purchased by the assessee. The dispute centers around whether the assessee's acquisition of Flat No. 1202 qualifies as a purchase within the meaning of section 54. The arguments revolve around the interpretation of the term 'purchase' and whether the assessee fulfilled the conditions for exemption under section 54. The Tribunal examined the facts, including the agreement for the second flat, possession, and substantial interest acquired by the assessee. Relying on relevant case law, the Tribunal held that the assessee had indeed purchased Unit No. 1202 within the prescribed time, making her eligible for exemption under section 54.2. The second issue pertains to the assessee's entitlement to exemption under section 54 for the purchase of a second residential house. The Tribunal considered whether the adjacent flats, Unit Nos. 1201 and 1202, could be treated as a single residential house for the purpose of section 54. Citing precedents and legal principles, the Tribunal concluded that two contiguous flats converted into a single residential premise should be considered a residential house. As the purchase of both flats was made within the specified period and for self-residence, the Tribunal upheld the CIT(A)'s decision to allow the deduction under section 54. The Tribunal dismissed the Revenue's objections on this ground.3. The third ground of the appeal relates to the claim for payment of brokerage to two brokers amounting to Rs. 1,01,000. The dispute centered on whether the brokerage payment was deductible as an expenditure incurred wholly and exclusively in connection with the transfer of the asset, as per section 48(1). The Tribunal considered the services rendered by the brokers, even though the sale did not materialize due to external factors. Upholding the CIT(A)'s decision, the Tribunal found that the brokerage payment was made for specific services rendered by the brokers in connection with the sale of the flat. Therefore, the Tribunal dismissed the Revenue's appeal on this ground, affirming the deductibility of the brokerage payment.In conclusion, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on all grounds. The judgment provides a detailed analysis of the legal provisions, factual circumstances, and relevant case law to determine the assessee's eligibility for exemption under section 54 and the deductibility of the brokerage payment.