2013 (6) TMI 925 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the date of transfer for capital gains tax purposes.
2. Eligibility for deduction u/s 54 of the Income Tax Act.
3. Adoption of cost of construction and indexation for capital gains calculation.
4. Deduction u/s 54 for multiple residential units.

Summary:

1. Determination of the Date of Transfer:
The assessee filed returns declaring Nil income for A.Y. 2005-2006 and 2007-2008. For A.Y. 2005-2006, the assessee entered into a development agreement on 3.8.2004. The CIT(A) concluded that the possession of the property was handed over to the developer on the date of the agreement, i.e., 30.08.2004, and thus, the transfer took place on that date. The assessee's grounds challenging this were dismissed.

2. Eligibility for Deduction u/s 54:
The assessee claimed deduction u/s 54, arguing that the development agreement should be treated as a transfer, and that he constructed 10 dwelling units within the stipulated period. The CIT(A) denied this, stating that the transferred asset consisted only of land and not a residential house. However, the Tribunal found that the building was part of the transferred asset and directed the AO to allow the deduction u/s 54.

3. Adoption of Cost of Construction and Indexation:
The assessee argued that the cost of construction should be indexed to account for inflation. The Tribunal directed the AO to adopt the SRO valuation on the date of transfer, following the decision in CIT vs. Ravinder Singh Arora. The Tribunal also found that the building existed and directed the AO to allow the cost of construction and indexation, adopting Rs.100 per sq. ft. as the value of the building as on 1.4.1981.

4. Deduction u/s 54 for Multiple Residential Units:
The Tribunal held that the assessee is entitled to deduction u/s 54 for all the flats received under the development agreement, following the judgments of the Karnataka and Delhi High Courts. The Tribunal cited the case of CIT vs. Gita Duggal, which held that the physical structuring of the residential house should not impede the allowance of the deduction.

Conclusion:
The appeals for A.Y. 2005-2006 and 2007-2008 were partly allowed, with directions to the AO to re-work the capital gains and allow deductions as per the Tribunal's findings. The order was pronounced in the open Court on 17th June, 2013.