Smt. Anuradha Chennu Vs DCIT (ITAT Hyderabad)
Conclusion: Assessee was entitled to deduction under section 54F in respect of the entire value of all 50 residential flats receivable under the Joint Development Agreement. Prior to the amendment effective from 01.04.2015, exemption under section 54F could not be restricted merely because the investment was made in multiple residential units. Further, flats agreed to be allotted in future under a JDA constituted investment in construction of a residential house for the purposes of section 54F. Accordingly, AO was directed to grant deduction under section 54F against long-term capital gains.
Held: Assessment was reopened based on information gathered during a survey conducted on developer M/s Krishna Infra. Department found that assessee had entered into a Joint Development Agreement for development of land. Under the agreement, 165 flats with a total built-up area of 2,15,555 sq. ft. were to be constructed, out of which 50 flats having a built-up area of 66,667 sq. ft. were to be allotted to assessee in exchange for contribution of land. Department estimated the construction value at Rs.1,200 per sq. ft. Based on this valuation, reassessment proceedings under Section 147 were initiated through issuance of notice under Section 148. AO treated the execution of the Joint Development Agreement itself as a “transfer” within the meaning of Section 2(47)(v) read with Section 53A of the Transfer of Property Act and computed long-term capital gains of Rs.7.96 crore in the hands of assessee. AO adopted gross consideration of Rs. 8 crore by applying the rate of Rs.1,200 per sq. ft. on the 66,667 sq. ft. area receivable by assessee and after reducing indexed cost of acquisition, completed reassessment under Section 147 read with Section 144B. Assessee raised a claim for deduction under Section 54F in respect of all 50 flats receivable under the JDA before CIT(A). However, the appellate authority rejected the claim on multiple grounds. Firstly, it held that assessee had not claimed Section 54F deduction before AO through a revised return. Secondly, CIT(A) held that even if deductions were allowable, the benefit could be restricted only to one residential flat and not multiple flats. CIT(A) further observed that assessee had failed to furnish adequate documentary evidence proving construction or acquisition of the flats. Before Tribunal, assessee challenged both the denial of deduction and the interpretation adopted by CIT(A). Assessee argued that for assessment years prior to 2015-16, judicial precedents had confirmed that multiple residential units received under a single development agreement could still qualify as “a residential house” for purposes of Section 54F. It was also contended that the amendment restricting exemption to “one residential house situated in India” became effective only from AY 2015-16 and therefore could not be applied retrospectively to AY 2013-14. It was held that where assessee transferred land under a Joint Development Agreement (JDA) and, in consideration, became entitled to receive multiple residential flats/apartments from the developer, deduction under section 54F could not be denied merely because the investment related to more than one residential unit. Prior to the amendment made by the Finance Act, 2014 with effect from 01.04.2015, the expression “a residential house” included multiple residential flats forming part of the consideration received under a development agreement. Further, the residential flats agreed to be allotted to the assessee in future under the JDA constituted investment in construction of a new residential house for the purposes of section 54F, notwithstanding that the flats were yet to be constructed. Since the developer retained and utilized the assessee’s share of consideration for construction of the allotted flats, the requirement of investment in a residential house stood satisfied. Therefore, the assessee was entitled to deduction under section 54F in respect of the entire value of all flats receivable under the JDA, and AO was directed to grant exemption against the long-term capital gains accordingly.
