2017 (4) TMI 1550 - AT - Income Tax

Exemption u/s 54F - flats received in pursuance of development agreement - HELD THAT - Respectfully following the decision of coordinate bench, in the case of ITO Vs. Ravuri Kishore Others in 2017 (4) TMI 120 - ITAT VISAKHAPATNAM we are of the view that the assessee is eligible for exemption u/s 54F of the Act, in respect of 3 flats received in pursuance of development agreement. CIT(A) after considering relevant facts has rightly held that the assessee is eligible for exemption u/s 54F of the Act for 3 flats - CIT(A) further observed that, since, the legal heirs has sold two flats within 3 years from the date of acquisition, the amount of capital gain exempted in respect of two flats u/s 54F of the Act shall be brought to tax in the A.Y. 2009-10. We do not find any error in the order of the CIT(A). Hence, we inclined to upheld the CIT(A) order and dismiss ground raised by the revenue. Computation of long term capital gain in pursuance of development agreement and adoption of consideration for transfer of property - A.O. has adopted guidance value of the land to determine the consideration received towards transfer of property in pursuance of development agreement - assessee contended that cost of constructed apartments has to be considered for determination of consideration by transfer of property but not the guidance value of the land - HELD THAT - We find that once the issue has been decided that the assessee is eligible for exemption u/s 54F of the Act and in respect of all the flats, the other issues raised by the assessee with regard to the computation of capital gain and determination of consideration for the purpose of computation of capital gain becomes academic, as the assessee is eligible for exemption towards all the flats received in pursuance of a joint development agreement and this does not matter whatever is the value of flat or land to determine the consideration received for transfer of land. Therefore, we are of the view that determination of sale consideration and computation of capital gain has no impact on the total income, once exemption is allowed towards all flats received in pursuance of development agreement.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Determination of capital gains under Section 45 read with Section 2(47)(v) of the Income Tax Act.
3. Adoption of guidance value of land for computing capital gains.
4. Eligibility for exemption under Section 54F of the Income Tax Act for multiple residential units.
5. Admission of fresh claims for exemption by the CIT(A).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The case was reopened under Section 147 of the Income Tax Act, 1961, as the income chargeable to tax had escaped assessment. The reopening was based on the development agreement-cum-general power of attorney entered into by the assessee with a developer, which was considered a transfer under Section 2(47)(v) of the Act, leading to capital gains.

2. Determination of Capital Gains:
The Assessing Officer (A.O.) held that the development agreement amounted to a transfer of property under Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882. Consequently, the profit arising from such transfer was chargeable to tax under the head "capital gains" as per Section 45 of the Act. The A.O. computed long-term capital gains by adopting a value of ?12,500 per sq. yd. for the land transferred and calculated the capital gain to be ?76,44,645 after allowing an indexed cost of acquisition of ?4,92,855.

3. Adoption of Guidance Value of Land:
The A.O. adopted the guidance value of the land for determining the consideration for the transfer of land under the development agreement. The assessee contended that the value of the constructed apartments should be considered instead, as per Section 50C of the Act.

4. Eligibility for Exemption under Section 54F:
The CIT(A) held that the consideration received by the landowner in a development agreement is the value of the flats and not the value of the land foregone. The CIT(A) directed the A.O. to rework the capital gain by adopting the value of the constructed apartments. The CIT(A) also allowed exemption under Section 54F for the 3 flats received, following judicial precedents that the term "residential house" does not refer to a single unit. The CIT(A) cited decisions from the Karnataka High Court and A.P. High Court supporting the view that multiple units in a single residential building qualify for exemption under Section 54F.

5. Admission of Fresh Claims by CIT(A):
The CIT(A) entertained the assessee's fresh claim for exemption under Section 54F, despite the A.O. not considering it initially. The CIT(A) justified this by citing the appellate authority's power to entertain fresh claims, as supported by the Supreme Court's decision in Goetze (India) Ltd. Vs. CIT.

Conclusion:
The Tribunal upheld the CIT(A)'s order, affirming that the assessee is eligible for exemption under Section 54F for all flats received under the development agreement. The Tribunal noted that the determination of sale consideration and computation of capital gains became academic once the exemption was allowed for all flats. The Tribunal dismissed the revenue's appeal, confirming that the CIT(A) acted within its powers to admit the fresh claim for exemption.