2014 (1) TMI 594 - AT - Income Tax

Deduction u/s 54/54F of the Act construction of more then one unit / floor in a house - Held that - Following Commissioner of Income Tax Versus Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT - the assessee s claim for deduction u/s 54/54F of the Act in respect of the house/units in the first and second floors holding that they were separate and independent residential units having separate entrances and cannot be considered as one unit to enable the assessee to claim the deduction - The Tribunal expresses the view that the words a residential house appearing in Section 54/54F of the Act cannot be construed to mean a single residential house since u/s 13(2) of the General Clauses Act, a singular includes plural - Section 54/54F uses the expression a residential house . The expression used in not a residential unit - A person may construct a house according to his plans and requirements - Most of the houses are constructed according to the needs and requirements and even compulsions - We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house - the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s - 54/54F - It is neither expressly nor by necessary implication prohibited Decided in favour of Assessee. Non-monetary consideration Cost Indexation Index Held that - Following Commissioner of Income Tax Versus Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT - Non-monetary consideration have to be taken as consideration towards purchase of property and in Commissioner of Income-tax Versus Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT it was held that the benefit of indexation shall be available from the year when previous owner first acquired it. If expression held by assessee interpreted differently to give benefit of indexation from the period when assessee acquired it, would defeat the purpose of statute. If the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee Decided in favour of Assessee and against Revenue.

Issues Involved:
1. Eligibility of deduction under Section 54 of the Income Tax Act for non-monetary consideration in terms of flats received.
2. Consideration of multiple flats as a single residential house under Section 54.
3. Determination of the period for Cost Inflation Index under Section 48.
4. Entitlement of the appellant to 1/4th or 1/6th share of the total consideration received.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 54 for Non-Monetary Consideration:
The primary issue was whether the non-monetary consideration in terms of two flats received from the developer could be considered as an adjustment of the sale consideration towards the purchase price of flats. The CIT(A) held that these flats were eligible for deduction under Section 54(1) of the Income Tax Act. The ITAT confirmed this view, referencing the judgment of the Hon'ble Delhi High Court in the case of Gita Duggal, which clarified that the phrase "a residential house" should not be construed to mean a single residential unit. The Tribunal emphasized that the structure of the residential house, whether lateral or vertical, should not impede the allowance of the deduction under Section 54.

2. Consideration of Multiple Flats as a Single Residential House:
The AO contended that the two flats received by the assessee were distinct and separate and thus could not be considered as a single residential house eligible for deduction under Section 54. The Tribunal, however, followed the precedent set by the Delhi High Court in Gita Duggal, which held that multiple units could be considered as a single residential house for the purpose of Section 54. The Tribunal concluded that the physical structuring of the new residential house should not affect the eligibility for deduction, thereby ruling in favor of the assessee.

3. Determination of the Period for Cost Inflation Index:
The AO argued that the Cost Inflation Index should be calculated from the first year in which the asset was held by the assessee, not from the date when the asset was acquired by the original owner. The CIT(A) and subsequently the Tribunal, relying on the decision of the ITAT Special Bench in the case of Manjula J. Shah, held that the indexed cost of acquisition should be determined with reference to the cost inflation index for the first year in which the capital asset was held by the previous owner. This interpretation was aligned with the legislative intent to tax the gains arising from the transfer of a capital asset acquired under a gift or will, considering the period for which the asset was held by the previous owner.

4. Entitlement to 1/4th or 1/6th Share of the Consideration:
The appellant claimed that he was entitled to 1/6th of the total consideration received, based on a family arrangement. The CIT(A) initially held that the appellant was entitled to 1/4th share, considering the family arrangement and the rights of the parents and sister to reside in the property until their demise. The Tribunal upheld this decision, noting that the appellant's earlier claim of being a 1/4th owner was legally correct, as the rights of the parents and sister did not make them owners of the property but only granted them the right to occupy the flats until their death.

Conclusion:
The appeal filed by the assessee was allowed, and the appeal filed by the AO was dismissed. The Tribunal affirmed that the non-monetary consideration in terms of flats received could be adjusted towards the purchase price of flats for the purpose of deduction under Section 54. Multiple flats could be considered as a single residential house, and the indexed cost of acquisition should be determined from the date the previous owner first held the asset. The appellant was entitled to a 1/4th share of the consideration, not 1/6th, based on the family arrangement and the limited rights of the parents and sister.

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