2020 (8) TMI 725 - AT - Income Tax

Exemption u/s 54F - assessee was denied the benefit of deduction u/s 54F was that the assessee owned more than two residential houses, other than the new asset on the date of transfer of the original asset - HELD THAT - From the order of assessment passed u/s 147 for assessment year 2011-12 it is clear that the Dhobi Ghat, Thalgatpura and Nagadevanahalli properties were in fact not residential houses owned by the assessee and that the assessee had only given the lease of vacant land and obtained rent for land and not for any building - assessee did not own more than one residential house, other than the new asset on the date of transfer of the original asset. Therefore, deduction u/s 54F of the Act should be allowed to the assessee. We hold and direct accordingly. Capital gain computation - FMV as on 01.04.1981 - plea of the assessee that fair market value and guideline value are two different values and generally, the fair market value is higher than the guideline value - assessee had adopted the value as on 01.04.1981 at ₹ 150/- per sq.ft. on the basis of a report of a registered valuer - HELD THAT - Our attention was drawn to a decision in the case of Late Smt. Krishna Bajaj Vs ACIT 2013 (12) TMI 544 - KARNATAKA HIGH COURT wherein it was laid down that in the context of fair market value for the purpose of computing capital gain, that market value of property is generally far more than higher than the guideline value. The claim of the assessee for FMV as on 01.04.1981 is supported by a report of the registered valuer and facts of the present case, we are of the view that the claim of the assessee for adopting FMV as on 01.04.1981 at ₹ 150/- per sq.ft. is reasonable and the same is directed to be accepted. Benefit of indexation to the assessee - HELD THAT - Property was acquired by M. Gunasheela on 10.09.1979 and that on his death on 30.11.2004, wife of Gunasheela released her 1/3rd share in favour of her two daughters and thereby, the assessee and his sister got half share each of the property. This deed of release was dated 30.09.2009. Provisions of section 55(2)(b)(ii) of the Act are relevant and the same provides that if the capital asset becomes property of the assessee by way of succession, the cost of acquisition of the capital asset would be the cost of the capital asset to the previous owner or the FMV as on 01.04.1981 at the option of the assessee, if the capital asset was acquired by the previous owner prior to 01.04.1981. In the present case, neither the assessee nor her mother acquired the property. They acquired the property only by way of inheritance. The share released by mother of the Assessee in her favour also had not cost to her and therefore the cost to the previous owner has to be adopted. The property was acquired by Gunasheela prior to 01.04.1981 and the assessee in the computation of capital gain has opted to adopt the FMV as on 01.04.1981 for computing capital gain. Assessee would be entitled to the benefit of indexation from 01.04.1981 in respect of her half share in the property on sale of which, the assessee derived capital gain. - Appeal by the assessee is partly allowed.

Issues Involved:
1. Entitlement to deduction under Section 54 of the Income Tax Act.
2. Entitlement to alternative claim for deduction under Section 54F of the Income Tax Act.
3. Determination of the cost of acquisition as on 01.04.1981.
4. Eligibility for indexation from 01.04.1981.

Detailed Analysis:

1. Entitlement to Deduction under Section 54:
The assessee initially claimed deduction under Section 54 of the Income Tax Act, asserting that the property sold was a residential house. However, the Assessing Officer (A.O.) found that the property sold was vacant land based on information from Bruhat Bengaluru Mahanagar Palike (BBMP). Consequently, the A.O. denied the exemption under Section 54, as it applies only to residential houses.

2. Entitlement to Alternative Claim for Deduction under Section 54F:
The assessee subsequently claimed exemption under Section 54F, which applies to the sale of any long-term capital asset other than a residential house. The A.O. denied this claim, stating that the assessee owned more than one residential house, disqualifying her from the benefits under Section 54F. The CIT(A) upheld this view, noting that the assessee declared income from three properties as house property income in the previous year, contradicting her claim that two of the properties were vacant lands. However, upon appeal, it was revealed that the properties at Dhobi Ghat, Thalgatpura, and Nagadevanahalli were indeed vacant lands, and the rent received was for land lease, not buildings. Therefore, the Tribunal concluded that the assessee did not own more than one residential house at the time of the asset transfer, entitling her to the exemption under Section 54F.

3. Determination of Cost of Acquisition as on 01.04.1981:
The assessee claimed the fair market value (FMV) of the property as ?150 per sq.ft. as on 01.04.1981, supported by a registered valuer's report. The A.O. and CIT(A) adopted a lower value of ?100 per sq.ft., based on guideline values from the sub-registrar. The Tribunal, referencing the Karnataka High Court's decision in Late Smt. Krishna Bajaj Vs ACIT, acknowledged that FMV is generally higher than guideline values. Given the valuer's report and the legal precedent, the Tribunal directed the adoption of ?150 per sq.ft. as the FMV.

4. Eligibility for Indexation from 01.04.1981:
The assessee sought indexation benefits from 01.04.1981 for the entire property. The CIT(A) allowed indexation from 2004-05 for the 2/3rd share inherited from her father and from 2009-10 for the 1/3rd share released by her mother. The Tribunal held that since the property was acquired by the previous owner (the father) before 01.04.1981, and the assessee opted to adopt the FMV as on 01.04.1981, she was entitled to indexation from 01.04.1981 for the entire property, including the share released by her mother.

Conclusion:
The appeal by the assessee was partly allowed. The Tribunal directed the allowance of deduction under Section 54F, adoption of ?150 per sq.ft. as the FMV as on 01.04.1981, and indexation benefits from 01.04.1981 for the entire property. The other grounds of appeal were deemed academic and not adjudicated. The order was pronounced in the open court on 26th August 2020.

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