Dr. S.T.M. Pavalan, Judicial Member - These cross appeals filed by the Revenue and Assessee are directed against the order of the Ld.CIT(A) -33, Mumbai dated 20.12.2011 for the Assessment Year 2005-06. Both these appeals are disposed off by this common order.
2. The grounds raised in the appeals filed by the assessee and the Revenue respectively relate to the decision of the Ld.CIT(A) regarding the taxability of the capital gains and allowing the exemption claimed by the assessee u/s 54 of the Income Tax Act.
3. Briefly stated, the assessee, an individual came to be the owner of the property situated at Chembur through a process involving inheritance by succession and gift. The assessee desired to demolish the then dilapidated structure in the said property and reconstruct a multi storied building consisting of basement, grounds floor and upper floors by utilising the permissible FSI. The assessee entered into a development agreement dated 16.07.2004 with the developer namely M/s. Bhawanji S. Bhadra. As per the term of the agreement , the developer agreed to construct a building 'Jai Sai' and hand over the major part of the basement, ground floor, first, second, ninth, tenth and 11th floor premises to the assessee. Further, the developer was entitled to sell the remaining flats. The assessee had not shown any tax on the capital gains as the possession of the property was never parted by him and there was no transfer as envisaged in the provisions of capital gains. Further, the contention of the assessee was that he had sold right to load TDR and though it being a capital asset, which is not taxable since no cost of acquisition for right to load TDR was involved. However, in the assessment framed u/s 143(3) r.w.s. 147 of the Act, the AO held that the case of the assessee falls within the purview of section 50C of the Act and it was a clear case where capital gain arose on account of grant of development rights by the assessee which is evidenced by the development agreement. On the alternate contention of the assessee that he is eligible for exemption u/s 54 of the Act in respect of the cost and construction of the three floors (9th, 10th & 11th), the AO partly allowed the claim of exemption only in respect of 10th floor. On appeal, the Ld.CIT(A), while upholding the order of the AO as regards the transfer which attracts the provisions of capital gain, allowed the exemption claimed by the assessee u/s 54 of the Act. Aggrieved by the impugned order, the assessee has filed the appeal challenging the taxability of the capital gain and the Revenue has filed the appeal agitating the action of the Ld.CIT(A) in allowing the exemption claimed by the assessee u/s 54 of the Act.
4. Firstly, as regards the claim of the assessee raised in his appeal that the gains arising from the transfer vide agreement dated 16.07.2007 in respect of the property is not taxable under the Act, it is the contention of the assessee that the possession of the property has never been parted by him and therefore there is no transfer as envisaged in the provisions of capital gains and the Transfer of Property Act. However, we are inclined to concur with the findings of the Ld.CIT(A) that the contentions of the assessee lack merit in view of the fact that as regards the construction relevant to the additional FSI of 11,658 sq.ft, being the flats sold by the developer on the said plot of land, the said property is sold and transferred to third parties along with possession thereof. The developer had the right to sell the said flats on account of the additional FSI by virtue of loading TDR. To that extent the rights, title and interest in the said plot of land have been transferred. Hence, it is a clear case of transfer envisaged both under Capital Gains and Transfer of Property Act. Therefore, the existing FSI as well as the additional FSI have their genesis and primary roots in the plot of land and in the context of construction, the cost of FSI assigned or transferred needs to be determined on a pro-rata basis based on the cost of acquisition of the plot of land as held by the authorities below. Hence, we do not find any infirmity in the decision of the Ld.CIT(A) on this count and we decide this issue against the assessee and in favour of the Revenue.
5. Secondly, in the Revenue's appeal, the decision of the Ld.CIT(A) in allowing the exemption of Rs.59,18,496/- u/s 54 of the Act claimed by the assessee on account of the investment/cost of construction made in the flats on 9th, 10th and 11th floor which are in his possession as his residential house has been agitated. It is pertinent to mention that the Ld.CIT(A) has allowed the claim of the assessee for exemption u/s 54 of the Act by relying on the decision of the Karnataka High Court in the case of CIT v. Smt. K.G. Rukminiamma [2011] 331 ITR 211/196 Taxman 87/8 taxmann.com 121wherein it has been held that residential flats constitute 'a residential house' for the purpose of section 54, where profit on sale of property is used for residence and further held that four residential flats cannot be construed as four residential houses for the purpose of section 54, when all are situated in the same building. It has to be construed only as 'a residential house' and the assessee is entitled to the benefit accordingly. As regards the contention of the Revenue placing the reliance on the decision of the Punjab & Haryana High Court in the case of Pawan Arya v. CIT [2011] 200 Taxman 66/11 taxmann.com 312, it is pertinent to mention that the assessee, in the said case, has claimed exemption in respect of two independent residential houses situated at different locations namely one in Dilshad Colony, Delhi and the other in Faridabad and the benefit has been restricted by the court to one house since two new houses were acquired in different locations. However, the facts are distinguishable in the case of the present assessee. It is relevant to point out that the High Court of Delhi in the case of CIT v. Gita Duggal [2013] 214 Taxman 51/30 taxmann.com 230 has held that residential house consists of several independent units cannot be permitted to act as an impediment to allow the deduction under section 54/54F of the Act. In the case of CIT v. D. Anand Basappa [2009] 309 ITR 329/180 Taxman 4 (Kar.), the High Court of Karnataka has held that "a residential house" as mentioned in section 54(1) of the Act, has to be understood in a sense that the building should be of a residential nature and the word "a" should not be understood to indicate a singular number. This decision has been followed by the Karnataka High Court in the case of Smt. K.G. Rukminiamma (supra). The High Court of Andhra Pradesh in the recent case of CIT v. Syed Ali [2013] 352 ITR 418/215 Taxman 283/33 taxmann.com 212, has also held that the exemption under section 54 only requires that the property purchased by assessee out of sale proceeds should be of residential nature and the fact that residential house consisted of several independent units cannot be an impediment for granting relief under said section, even if such independent units are situated side by side, on different floors or are purchased under separate sale deeds. The High Court of Andhra Pradesh in the said case has agreed with the findings of the decision of the High Court of Karnataka in the case of D. Anand Basappa (supra). Therefore, considering the totality of the facts and circumstances in the light of consistent view of different High Courts, we are of the view that the Ld.CIT(A) has correctly decided that the assessee is entitled for exemption under section 54 of the Act as regards the investments/cost of construction claimed by the assessee in respect of all the flats. In view of that matter, we do not find any justifiable reason to interfere with the decision of the Ld.CIT(A) on this count and the same is upheld.
6. In the result, the appeals filed by the assessee and the Revenue are dismissed.