Brief about the case
In the case of Asstt. Commissioner of Income Tax Vs Late Gopal V. Gorwani, the following issues were taken up by the ITAT Mumbai.
ISSUE 1: Whether Flats to be constructed by the vendee on behalf of the co–owners is the non–monetary consideration received by them on account of sale of the property?
On the basis of a survey conducted in the business premises of Gorwani Builders, a partnership firm where the assessee was a partner, assessment of the assessee for the impugned assessment year was re–opened under section 147. During the re–assessment proceedings, the Assessing Officer found that in the relevant previous year, the assessee along with his brother Shri Srichand Gorwani, who were the joint owners of a property named “Gorwarni House” sold it to Queen’s Villa Developers Pvt. Ltd. through a deed of conveyance dated 25th January 2005 for a recorded sale consideration of Rs. 8.15 crore. On a perusal of the deed of conveyance, it was noticed by the Assessing Officer that as per the arrangement made with the vendee, two residential flats in 9th and 10th floor are to be constructed by the vendee for the vendors. The terms of the deed further provided that amount of Rs. 15 lakh each towards the cost of construction of each land is to be adjusted from the sale consideration of Rs. 8.15 crore. The Assessing Officer, on perusing the aforesaid terms of the agreement was of the view that flats to be constructed by the vendee on behalf of the co–owners is the non–monetary consideration received by them on account of sale of the property. He, therefore, quantified non–monetary consideration on pro–rata basis for each flat at Rs. 93,50,000 and treated it as part of sale consideration and computed long term capital gain accordingly. Being aggrieved by the addition of Rs. 93,50,000 to the sale consideration, the assessee challenged the same in an appeal preferred before the learned Commissioner (Appeals).
Thus, it was held by the learned Commissioner (Appeals) that since one cannot sell to self, non–monetary consideration considered by the Assessing Officer is erroneous. Therefore the CIT (A) decided in favour of the assessee. Being aggrieved, Revenue knocked the door of Mumbai ITAT.
The Mumbai ITAT held that it cannot be said that the assessee has sold or exchanged the FSI towards construction of two flats. As per the terms of agreement, the vendors are to pay Rs. 15 lakh each towards cost of construction of the flats by the vendee. Thus, it is evidently clear from the terms of the agreement that the construction of flat by the vendee is not free of cost; on the contrary, cost of construction is to be adjusted from sale consideration. Under these circumstances, it cannot be said that the assessee has received any non–monetary consideration on account of construction of flat by the vendee. Therefore, the Mumbai ITAT confirmed the order of the learned Commissioner (Appeals) in deleting the addition of Rs. 93,50,000.
ISSUE 2: Disallowance of deduction u/s 54
The Assessing Officer had disallowed assessee’s claim under section 54 towards investment in acquiring his brother’s share in a separate property, on the plea that the partition of the property between the assessee and his brother had taken place orally in the year 1996. And so it will be deemed that transfer of property had taken place in the year 1996. Therefore, assessee’s claim that it had invested in construction of new house by virtue of partition deed on 29th January 2005, is not acceptable. The CIT (A) however, upheld that the assessee purchased his brother’s shares in the plot along with constructions vide agreement dated 29th January 2005 by utilising the sale proceeds of a property sold by him. Therefore, as the assessee had invested the capital gain in construction / purchase of a new house, he is eligible for deduction under section 54. This landed the revenue to appeal before the Mumbai ITAT which held that since no consideration was received by the assessee at the time of the oral partition, there is nothing on record to show that as a result of the oral partition Shri Srichand Gorwani (assessee’s brother), actually relinquished his right, title and interest over the property in favour of the assessee. Moreover, no transfer of immovable property can take place otherwise than by way of written registered agreement.
Hence, the appeal of the revenue was dismissed.
Facts of the case:
ISSUE 1:
