2013 (8) TMI 757 - AT - Income Tax

Exemption u/s 54 - scope of the term a residential house construction of 7 flats - building development agreement in respect of existing dwelling house - Held that - Relying upon the judgment in the case of CIT vs. Smt. K.G. Rukmini Amma 2010 (8) TMI 482 - Karnataka High Court following its earlier decision in case of CIT vs. D.Anand Basappa 2008 (10) TMI 99 - KARNATAKA HIGH COURT , in which it have been held that the expression a residential house as appears in section 54 of the Act, cannot be interpreted in a manner to suggest that the exemption would be restricted to a single residential unit In the present case, considering the totality of the facts and circumstances in the light of consistent view of different High Courts including the jurisdictional High Court, lower authorities were not correct in restricting the exemption under section 54F of the Act to only one flat by interpreting the words a residential house in a manner which has been held to be an incorrect interpretation The assessee is entitled for exemption under section 54F of the Act in respect of all the seven flats - Assessing Officer, therefore directed to compute capital gain, if any, after allowing exemption under section 54F of the Act in respect of all the seven flats which were received by the assessee under the development agreement. In view of our aforesaid finding, the other issue as to whether the long term capital asset transferred by the assessee under development agreement was simply a land as held by the department or a residential house along with land as claimed by the assessee so as to entitle it for exemption under section 54 of the Act has become inconsequential and therefore, not required to be adjudicated upon Decided in favor of Assessee.

Issues Involved
1. Nature of the long-term capital asset transferred.
2. Eligibility for exemption under Section 54 of the I.T. Act, 1961.
3. Interpretation of "a residential house" under Sections 54 and 54F.
4. Valuation of flats received as consideration and fair market value of the land.

Detailed Analysis

1. Nature of Long-Term Capital Asset Transferred
The primary issue is whether the asset transferred by the assessee was simply land or land with a building. The assessee claimed that the property included residential houses, supported by municipal tax receipts and an order from the Urban Land Ceiling Authority. The Assessing Officer, however, treated the asset as open land without any building and denied exemption under Section 54, limiting the exemption under Section 54F to one flat.

2. Eligibility for Exemption Under Section 54
The assessee claimed exemption under Section 54 for the entire capital gains on the grounds that the property included residential houses. The Assessing Officer and CIT(A) disagreed, stating that the property was only land, thus not qualifying for Section 54 exemption. They allowed exemption under Section 54F only for one flat. The Tribunal, however, noted that the asset transferred included residential houses, making the assessee eligible for Section 54 exemption.

3. Interpretation of "A Residential House" Under Sections 54 and 54F
The Tribunal examined whether the phrase "a residential house" should be interpreted as a single unit or multiple units. Citing various High Court rulings, including those from Karnataka and Delhi, the Tribunal concluded that "a residential house" should be understood as a property of residential nature, not limited to a single unit. This interpretation allowed the assessee to claim exemption for all seven flats received under the development agreement, not just one.

4. Valuation of Flats and Fair Market Value of Land
The assessee valued the flats received at Rs. 27 lakhs, while the Assessing Officer valued them at Rs. 98,89,880. The Tribunal did not find sufficient arguments from the assessee on this issue during the hearing, leading to the dismissal of this ground.

Conclusion
The Tribunal set aside the orders of the CIT(A) and directed the Assessing Officer to compute the capital gains after allowing exemption under Section 54F for all seven flats. The Tribunal's decision was based on a broader interpretation of "a residential house" and the acknowledgment that the transferred asset included residential houses. The appeals were partly allowed, providing significant relief to the assessee.

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