Dr. Sudhir Naik (HUF) Vs. ITO (ITAT Hyderabad)
Another contention is about claim of 54F/54. It was the contention that assessee has sold all the flats allotted to him and therefore, at the time of investing in the new house, he has no other house except this house. As seen from the agreements and the principles of law involved, all the apartments received in the development agreement would become one house technically, even though they are of independent units. But, when the claim is made, it was the contention of assessee that all those flats were sold. Therefore, assessee does not own any other house, except the house in which he has invested. This aspect has not been considered by the AO or by the CIT(A) in the correct perspective. Therefore, I am of the opinion that this matter has to be re-examined by the AO keeping in mind the date of sale of various apartments and the claim u/s. 54F/54. Accordingly, the ground is considered allowed for statistical purposes.
FULL TEXT OF ITAT ORDER IS AS FOLLOWS:
Four appeals from ITA Nos. 1463/Hyd/2016 to 1466/Hyd/2016 are by assessees against the order(s) of the Commissioner of Income Tax Appeals-1, Hyderabad, dated 18-08-20 16 u/s. 143(3) r.w.s. 254 of the Income Tax Act [Act] for the AY. 2003-04. The other four appeals i.e., from ITA Nos. 1467/Hyd/2016 to 1470/Hyd/2016 are by the same assessees against the modification order passed u/s. 154 of the Act and confirmation of the same by the Ld.CIT(A)-1, dt. 17-08-2016. Since common issues are involved, these appeals are heard together and decided by this common order.
2. The issue in these appeals is with reference to computation of capital gains. The families of Shri Balakrishna Naik and Shri Ramachandra Naik had properties in Vidya Nagar, Hyderabad, bearing H.Nos. 1-9-698 and 1-9-1087. Shri Balakrishna Naik branch consists of Shri Balakrishna Naik, his wife Smt. Kamalabai Naik and sons Shri Govind Naik, Shri Ramesh Naik and Shri Suresh Naik. The matters pertaining to these persons are not before us.
2.1. Shri Ramachandra Naik expired on 09-07-1994. His branch consists of four members i.e., wife Smt. Uttara Bai Naik, Sons- Dr. Sudhir Naik, Sachitananda Naik and Satish Naik, assessees in the present appeals. The group has entered into agreement with M/s. Siri Sampada Constructions & other and has given 8,365 Sq. Yds., of land for development vide agreement date 05-03-1995. The developer has constructed thirty flats in Block-A and hundred flats in Block-B. All the thirty flats constructed in Block-A was allotted to the land owners. Out of the hundred flats constructed in Block-B, the owners got twenty-one flats towards their share. Thus, they got fifty-one flats out of one hundred and thirty flats constructed by the developer. Out of the fifty-one flats, the owners have sold twenty-four flats before March, 2003. The constructed area in the share of completed flats was to be handed-over by the developers to assessees within two years from the date of development agreement. Thus, the developer has to handover the constructed area by March 1997. There was inordinate delay in execution of the work. While the construction was in progress, the members have sold some of the areas to which they were entitled to. In the process Assessee, Dr. Sudhir Naik has sold all the area available to him as per the development agreement. Like-wise, other members also have sold areas available to them. The developers have finally handed over the completed project in January 2003, as per the final agreement date 06-01-2003. Assessees herein have filed returns admitting NIL capital gains after claiming certain deductions u/s. 54F/54. The issue in these appeals is with reference to computation of capital gains and claim of deduction u/s. 54F.
3. For detailed discussion, the facts in the case of Dr. Sudhir Naik are discussed which also equally apply to all other persons, as they have common share in the property and assessment orders are identically passed.
ITA Nos. 1463/Hyd/2016 & 1467/Hyd/16 – Dr. Sudhir Naik (HUF):
4. Assessee- HUF declared total income of Rs. 2,45,240/-and declared long term capital gain of Rs. 19,53,754/- before claiming exemption u/s. 54F and net capital gains were declared at NIL. During the course of proceedings, assessee offered revised computation of long term capital gains which was increased to Rs. 29,08,292/- but since the claim of deduction was to an extent of Rs. 1,13,50,000/-, the net capital gain was declared again at NIL. Assessee acquired a residential house at Gowliguda, Hyderabad and claimed deduction u/s. 54F on the reason that:
a) He has transferred his share in the constructed area available as per the development agreement;
b) The area sold is not a residential house, the share in the residential complex;
c) That assessee does not own more than one house except the new house purchased, which is a residential house;
4.1. The AO while re-computing the long term capital gains, however, rejected the exemption claimed u/s. 54F for the following reasons:
i. Assessee and other co-owners are entitled to total 51 flats and assessee is entitled to at-least six flats in the complex;
ii. The property sold by assessee consists more than one residential unit and hence the condition of 54F is not satisfied;
5. The matter was taken in appeal to the CIT(A). The matter was decided against assessee by CIT(A) and further carried to ITAT. The ITAT set aside the assessment with the following observations/directions:
“Without going much into the merits about the availability of relief U/s. 54F of the Act, we are of the view that the computation of capital gain itself is faulty. It has to be appreciated that there are two sets of transactions. The first set consists of transfer of land in consideration of which the assessee received flats from the new property. On this set of transaction, capital gain arising on account of transfer of land has to be worked out. The other set of transactions is the sale of new flats allotted to the assessee. Capital gains, either short term or long term, have to be worked out separately on transfer of these flats. This would constitute a different and a distinct capital gain from the earlier one. When there is transfer of two assets, there has to be two separate capital gain and the two cannot be integrated into one to compute only one capital gain. Accordingly, we restore the matter back to the file of the Assessing Officer with the direction to recompute the capital gain separately on two sets of transactions and then decide upon the availability of relief U/s.54F of the Act. The Assessing Officer is directed to keep in view the decision of the Hyderabad Bench of the Tribunai in the case of Dr.Maya Shenoy, in ITA Nos.266 and 222/Hyd/05 dated 24.10.08. In the entire proceedings, due opportunity of being heard be given to the assessee.”
6. In the re-assessment proceedings, AO completed the assessment more or less on the basis of the original assessment, however, bifurcating the long term capital gains and short term capital gains. It was the contention of assessee that AO is bound to follow the directions of the Tribunal and compute the income following the principles laid down in the case of Dr. Maya Shenoy Vs. ACIT in ITA Nos. 266 & 222/Hyd/2005 dt. 24-10-2008 [23 DTR 140]. It was the contention that the long term capital gain on transfer of land for development does not pertaining to the year under consideration and only long term capital gain/short term capital gain on the sale of flats during the year can only be considered for computation and accordingly, the directions of ITAT have not been followed.
7. Before the Ld.CIT(A), assessee has raised grounds, mainly on the working of long term capital gain and short term capital gain and also the claim of 54F. It was also contended that AO has mis-directed himself in not following the directions of ITAT, particularly, the principles laid down in the case of Dr. Maya Shenoy Vs. ACIT (supra). Ld.CIT(A) in the impugned order, however, did not agree with assessee’s contentions and upheld the AO’s action by dismissing the appeal. The order of CIT(A), however, has not considered the contentions of assessee on the two sets of transactions, long term capital gain on transfer of land and short term capital gain on sale of super structure and principles involved in Dr. Maya Shenoy Vs. ACIT (supra), but only decided the issue regarding exemption u/s. 54F, which was dismissed by stating as under:
“6. Only issue in the case is regarding eligibility of exemption U/s.54F:
The Applicant has purchased/reinvested money in purchase of portion of residential house on 29-04-2002 bearing No.4-8-799 and part of 4-8-800, Gowliguda, Hyderabad from Smt. Nalini Prabhakar for an amount of Rs. 14,75,505/-. The claim was disallowed for reasons below:
As per the section, for allowing exemption under this section i.e. 54F, two conditions are to be satisfied.
1. It is allowable to individual & HUF only.
2. The assessee does not have more than one residential house on the date of transfer of the original asset, exclusive of the one purchased claiming exemption u/s. 54F.
Assessing Officer submitted, in this case, of the assessee, the first condition is satisfied. Regarding the second one, the assessee has received his share of flats in Block ‘A’ in August, 2001 itself. This is confirmed by M/s. N.R. Constructions & Engineering, who are the builders of M/s.Siri Sampada Constructions and M/s Pradeep Constructions, the developers of the property, vide their letter dated 14-03-2001. Hence, by that date of purchase of property, the assessee owned more than one house. (Since a flat/residential unit in a complex is treated as a residential house). Hence is not entitled for exemption U/s. 54F.
Before me, it is seen that the developmental agreement of the land was made on 05-03-1 995. The first set of capital gains arose in 1995- 96. As per letter dated 14-03-2001 of M/s.N.R.Consultants, Architects & Engineers stated that 15 flats in Block-A were given possession in the month of August, 20Cl itself, The Applicant has purchased two sets of properties. During the original assessment proceedings, the Assessing Officer had noted, that the Applicant has submitted the following arguments in support of its claim during the course of assessment proceedings:
“I have purchased a residential house, bearing No. 8-2293/82/A (Plot No. 120 New), Road No.l0, Jubilee Hills, Hyderabad through sale deed dated 08-07-2002 for a consideration of Rs. 1,00,00,000/-, Rs. 8,00,000/- as Stamp Duty and Rs.5,50,000/- as registration expenses.”
During the course of assessment proceedings, the Applicant submitted that to claim deduction U/s.54F, he has purchased a portion of residential house at Gowliguda, Hyderabad from Smt. Nalini Prabhakar for Rs. 14,75,505/- on dated 29-04-2002.
To sum up, the Applicant has already flats in Vidyanagar Complex and also purchased property in Jubilee Hills and Gowliguda, Hyderabad. The Applicant has not fulfilled second criteria. Therefore, in no way the Applicant is eligible for exemption U/s.54F”.
8. In the meantime, AO after passing the assessment order realized that the development agreement has taken place in the year 1994 and accordingly, allowing the indexation cost for the year 2003-04 was not correct and after giving an opportunity, revised the computation by taking the indexation cost for some portion in the year 1994-95 and for some portion in 1997-98, while calculating long term capital gain on sale of flats. Assessee again challenged the order u/s. 154 before the Ld.CIT(A) and vide order date 17-08-2016, he again confirmed the order of AO u/s. 154 by stating as under:
“5. Ground is regarding adopting cost index of 1994-95 of 259 when the sale is considered to have taken place during the previous year relevant to Assessment Year 2003-04.
The Assessing Officer on his own submission, passed order U/s. 154 of the IT Act after giving opportunity of being heard, as the following mistakes crept while passing order U/s. 143(3) r. w. s. 254 of the I.T.Act dated 31.12.2010:
a) Cost of indexation is to be taxed as 259 points which is relevant to previous year 1994-95 instead of 447 points.
b) The cost of indexation applied is incorrect, as such short term capital gain is to be added to returned income.
The contention of the Applicant is that cost of indexing has been taken for as 259 points which is relevant to previous year 1994-95. It is purely calculation mistake apparent from the record and the Assessing Officer has rectified the same U/s. 154. The Applicant has made no submission as to why this mistake to be rectified.
In light of above, I accept calculation made by the Assessing Officer”.
9. Assessee has raised the following grounds in the appeal:
“2. The learned CIT(A) erred in confirming the orders of the Assessing Officer computing Capital Gains, without appreciating the fact that he has not followed the directions of the Honorable tribunal of keeping in mind the decision in the case of Maya Chenoy as per which the Capital gains arising on account of development agreement is to be assessed only in the year of entering into development agreement and the assessment year before the learned CIT(A) is not the one.
3. The learned CIT(A) further failed to appreciate that such decision of the Tribunal has become final in view of monetary limits fixed by the CBDT and further that once the Capital gains arising on account of development agreement is not be considered in this year, the deduction u/s. 54 claimed is in order and the AO ought to have allowed the same, and thereby erred in confirming the order of the AO on the ground that the assessee owned more than one house.
4. On the facts circumstances of the case the order of the learned CIT(A) is liable to be quashed along with cost u/s. 254, as the order is passed in contravention of directions of the Hon’ble Tribunal”.
Ground Nos. 1 & 5 are general in nature.
10. In the course of proceedings, assessee has raised additional ground, which is as under:
“Without prejudice to the above ground and without accepting, at best the AO could have brought to tax the capital gains on sale of five flats jointly sold by the two groups of the HUF and could have assessed only the share that is falling to the assessee and ought to have allowed the deduction u/s. 54”.
11. Ld. Counsel submitted that the ITAT has clearly directed the AO to follow the principles laid down in the case of Dr. Maya Shenoy Vs. ACIT (supra), wherein the Hon’ble Bench has clearly held that (i) the capital gain on transfer of land in a development agreement will arise in the year of agreement, provided the agreement is fulfilled subsequently (ii) sale of property which was received in lieu of development agreement would be a separate capital gains transaction. Ignoring the above direction of the Tribunal, it was the contention that AO brought to tax the long term capital gain arising to assessee in the year 1995-96, whereas the impugned assessment year is AY. 2003-04 in which assessees have sold only five flats and only proportionate share should have been brought to tax. Ld.Counsel referred to the Paper Book, in which the statement showing list of flats retained, sold year-wise, which were furnished to AO earlier, to submit that assessee has sold fifteen flats in Block-A to Bank of Maharashtra on 23-08-2001 which pertains to AY. 2002-03. Therefore, those flats should have been brought to tax in AY. 2002-03 only.
11.1. With reference to flats sold in Block-B, the details are as under:
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