Smt. Parthiban Kalavathi Vs ACIT (ITAT Chennai)
ITAT Chennai held that capital gain exemption under section 54 of the Income Tax Act includes investment in purchase or construction of one or more than one residential house
Facts- The assessee sold a plot of land to a builder by entering into an agreement of sale dated 11.02.2013 by entrusting by way of GPA to the sale 10832 Sq.ft. of land fully developed on her behalf and in return, the assessee withheld fully developed land of 3973 Sq.ft. The assessee also entered into a construction agreement dated 12.08.2013 with a builder for a total sale consideration of Rs.1,43,97,600/- and the builder, in turn, to give constructed four Flats No.1A, 1B, 2A & 2B at first floor and second floor, respectfully of Block C-1.
According to A.O, the activity is adventure in nature of trade and this venture entered into by the assessee is of a commercial purpose. The A.O assessed this as business profit amounting to Rs. 1,44,31,642/- and made a protective assessment and also treated the income from the sale of the house property as Long Term Capital Gain, but denied the claim of deduction u/s. 54F of the Act for the reason that the assessee has invested the sale consideration in the purchase/construction of four Flats. The CIT(A) confirmed the action of the A.O. Being aggrieved, the present appeal is filed.
Conclusion- According to us, as per records assessee neither had any knowledge or capability about the business or property development nor had any intention to do so as the assessee gave a general power of attorney in favour of the builder accordingly. All the activities were done by builder through GPA dated 10.07.2013, whereby builder was authorized to do all such things as is necessary to enable construction of flats and also to sell the same. The GPA was restricted to the extent of builder’s right at 73.33% of the land and that portion allotted as builder’s share and the balance 26.67% was retained by the assessee. In our view, the entire above transaction is purely sale of plot to the builder and in turn received monetary consideration of Rs.2.85 Crore and balance 4 Flats valued at Rs. 1,44,31,642/-. Hence, according to us, this is a transaction of capital gains and assessee’s transaction is that of Long Term Capital Gain. Hence, we direct the A.O to treat the transaction as LTCG and assess the same accordingly.
We noted that this issue has been considered by the Hon’ble Madras High Court in the case of Tilokchand & Sons Vs. ITO [2019] 413 ITR 189 (Madras), wherein a residential house as occurring in s. 54(1) of the Act can include more than one or plural residential house.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-13, Chennai, in ITA No.93/CIT(A)-13/2014-15 dated 20.02.2018. The Assessment was framed by Asst. Commissioner of Income Tax, Non Corporate Circle-11, Chennai for the Assessment Year 2013-14 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide order dated 29.12.2016. The assessee raised the following two interconnected issues:
I) The CIT(A) erred in confirming the action of the A.O in making assessment on surplus arising from Joint Development Agreement (JDA) as business profit as against the assessee treating the same under the head “Long Term Capital Gains”.
II) The CIT(A) erred in confirming the action of A.O in rejecting the claim of exemption u/s. 54F of the Act pertaining to multiple units obtained under the JDA in the said computation under the head “Long Term Capital Gains”.
2. For this, the assessee has raised various grounds, but the issue is interconnected and classified into above two issues. Hence, we need not to reproduce the various grounds, which are argumentative and exhaustive.
3. The brief facts of the case are that the assessee sold plot of land i.e., schedule property measuring a total extent of 14805 Sq.ft., bearing Plot No. “C”, S. No.276, situated at Sasthiri Street as per Document (Annai Indira Nagar 1st Main Road as per Patta), Velachery, Chennai – 600 042 to a builder by entering into an agreement of sale dated 11.02.2013 by entrusting by way of GPA to sale 10832 Sq.ft. of land fully developed on her behalf and in return, the assessee withheld fully developed land of 3973 Sq.ft. The assessee also entered into construction agreement dated 12.08.2013 with builder for a total sale consideration of Rs.1,43,97,600/- and builder in turn to give constructed four Flats No.1A, 1B, 2A & 2B at first floor and second floor, respectfully of Block C-1. The A.O on perusal of these agreements noted that the assessee agreed to sale the concern land of 14805 Sq.ft. by agreement to sale dated 11.02.2013 to Mrs. Sangeethaa Sree. B, W/o Shri S.P. Babuvijay, Managing Director of Indu Housing Development (Chennai) Pvt. Ltd. The A.O on perusal of the GPA was of the view that out of the total 14800 Sq.ft., the assessee has entrusted 10832 Sq. ft. to the builder to sale on her behalf and the share of land withheld by the assessee works out to 3973 Sq.ft. Post this, an agreement for construction was entered into between the assessee and Indu Housing Development (Chennai) Pvt. Ltd. on 12.08.2013. As per the sale agreement and supplementary agreement dated 10.07.2013, the builder agreed to carry out construction work for a total consideration of Rs. 1,43,97,600/- for construction of four flats in the first and second floors at Block C-1 of the above land. The A.O noted that in a nutsheel at para 10 as under:
“10. In a nutshell, the following events unfolded :-
The assessee entered in to a Joint Development Agreement with the builder to construct residential homes on his vacant plot of land, However,, as an afterthought, to make use of section 54F deduction for the purpose of avoiding tax payments, maze of supplementary agreements were entered, including the Construction Agreement. Out of the total 14 Flats built by the builder, 4 Flats were retained by the assesses. It is prudent to mention here that the assesses did not get any other flats or payments from the Builder, except these 4 flats. That shows that 4 flats was the full and final payment to the assesses.”
4. According to A.O, the above activity is adventure in nature of trade and this venture entered into by the assessee is of a commercial purpose. The A.O assessed this as business profit amounting to Rs. 1,44,31,642/-. Alternatively, the A.O made protective assessment also treated the income from sale of house property as Long Term Capital Gain, but denied the claim of deduction u/s. 54F of the Act for the reason that the assessee has invested the sale consideration in purchase/construction of four Flats thereby, he denied the claim of deduction by observing as under:
“(i) Assesses sold a piece of land and received 4 different residential house properties In return. All 4 flats have different addresses namely 1-A, 1-B, 2A, 2B. The facts of the Hon. Madras-High Court Order, in the case of of Smt V.R, Karpagam Vs. CIT Coimbattore (Tax case [Appeal] No.301 of 2014), submitted by the assessee are different in this regard. In the cited case, the house property had a single address though 4 units held by the assessee in. this case are clearly distinct. 4 different electricity bills are paid as its evidenced from the records available, which were called for and submitted by the assessee.
(il) “Section 54F states that assessee can have only one house property on the date of sale other than the House Property bought, However, in this case, assessee had 4 different house properties as she bought 4 flats- together.
Hence, even if the income was assessed as income from House Property, the claims of 54F would not have been allowed. This addition is being made for as protective in nature if the appellate authorities decide to treat the income earned by the assessee as LTCG and not business income”.
5. It means that the A.O on one hand assessed the income earned by the assessee from sale of land and further, conversion into four different flats by collaborated with the builder as business income from business or profession by way of adventure in nature of trade. The A.O also disallowed the claim of deduction u/s. 54F of the Act. Aggrieved, the assessee preferred appeal before CIT(A).
6. The CIT(A) confirmed the action of the A.O by observing as under:
“In view of the above discussion, facts of circumstances of the case, the income earned by the assessee from sale of land and further conversion into four different flats by collaborating with the builder, is treated as income from business by way of adventure in the nature of trade. Accordingly on the issue whether the transaction is in the nature of trade the AO’s action is confirmed and ground of appeal is therefore dismissed.”
7. The CIT(A) also dismissed the claim of deduction by observing as under:
“I have carefully considered the appellant’s above contentions since the appeal authority has upheld the action of the assessing officer that income from the joint development agreement is in nature of adventure and therefore it is a business income and as claim of deduction u/s 54F is not available to the business income. Therefore the AO’s action to disallow the claim of deduction u/s 54F of the Act is hereby confirmed.
Alternatively, the assessee has not complied the eligibility condition under section 54F of the Act. The AO had rightly disallowed the claim of deduction u/s 54F of the Act. The ground of appeal on this issue is therefore dismissed.”
8. Before us, the Ld. counsel for the assessee filed paper book consisting of 93 pages, which include the agreement of sale entered into between the assessee and the developer dated 11.02.2013, general power of attorney executed by the assessee in favour of the Director of the developer company dated 10.07.2013, supplementary agreement entered into between the assessee and the developer company dated 10.07.2013, construction agreement entered into between the assessee and the developer of the company dated 18.08.2013 and finally confirmation given by the developer dated 23.12.2017. Before us, the Ld. counsel for the assessee argued that the assessee has sold entire ancestral property and in return got new flats on monetary consideration. Accordingly, the assessee has declared capital gains on the sale of ancestral property and in lieu whatever flats he has got in consideration, the same were claimed as exempt u/s. 54F of the Act. He stated that the A.O as well as CIT(A) erred in observing consequent to the various clauses in the agreement that there is a joint business effort and therefore, the surplus rising out of the sale of above ancestral land becomes income from business or profession. The Ld. counsel for the assessee stated that the assessee’s income in the above transaction for development is limited to the monetary consideration of Rs. 2.85 Crores and four flats for her residence valued at Rs. 1,44,31,642/-. He drew our attention to the agreement of sale dated 11.02.2013 and filed a quantification of the entire transaction, which reads as under:
