Kalpana Hansraj , Mumbai vs Assessee

The above titled appeal by the Revenue and the cross objections by the assessee are directed against the order of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as the CIT(A)] dated 03.12.2012.

2. The facts in brief are that the assessee, an individual, had filed the return of income for the year under consideration declaring total income at ITA No.2227/M/2013 & ITA No.116/M/2014 2 Mrs. Kalpana Hansraj

Rs.86,69,710/-. The AO during the assessment proceedings noted that the assessee had sold property at South Mumbai for a consideration of Rs.1,42,80,000/-. After deducting the indexed cost of acquisition etc., the taxable gain was arrived at Rs.1,52,66,271/-. The assessee had claimed exemption under section 54F amounting to Rs.66,66,491/- on account of investment of the part of the above stated capital gains. The assessment was completed under section 143(3) of the Act and the claim of the assessee under section 54F was allowed by the Assessing Officer vide order dated 12.11.2008. Subsequently, the Commissioner of Income Tax (CIT) initiated the proceedings under section 263 of the Act on the ground that the claim of the assessee under section 54F was erroneous and prejudicial to the interest of Revenue. He, (CIT) vide order dated 23.03.2011 set aside the assessment order dated 12.11.2008 and directed the AO to make fresh assessment after verifying as to whether the asset transferred was other than the residential house and whether the deduction had been correctly claimed by the assessee under section 54F of the Act. In the set aside proceedings, the AO observed that the asset transferred by the assessee was a residential house and hence the claim of exemption under section 54F of the Act was not admissible to the assessee. He rejected the contention of the assessee that the transferred property in question was not a habitable house and therefore would not fall in the definition of residential house. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

3. The Ld. CIT(A), after considering the submissions of the assessee, allowed the claim of the assessee observing as under:

"3. I have considered the facts of the case, assessing officer's order and the submissions made by the appellant before me.

3.1 The only issue involved in this appeal is to decide the character of the capital a sse t i n q u e st i o n w h i ch i s t r a n sf e r r e d b y t h e a p p e l l a n t d u r i n g t h e ye a r u n d e r consideration. Right from the stage ITA No.2227/M/2013 & ITA No.116/M/2014 3 Mrs. Kalpana Hansraj

of filing the return of income, appellant has disclosed all the material facts with respect to the conditions of the property and these facts are not in dispute. The appellant had booked a residential flat together wi t h c o v e r e d car parking in the building Om Sadan, on 15th January 1981. The s a i d society filed a suit in the Bombay High Court against the original builder, which it seems is still pending. The Hon. Bombay High Court appointed the committee of receiver with a direction to complete the construction. Vide agreement dated 31st October 2005, appellant sold the said 'under construction' unit resulting in taxable long term capital gains in her hands. Appellant also submitted notice dated 17 t h February 2011 issued by the Committee of court receiver (Om Sadan CHS Ltd) Bombay H i g h C o u r t , w h e r e i n i t i s s t a t e d t h a t t h e c o m p l e t i o n o f t h e t o w e r p r o j e c t i s progressing steadily.

3.2 Section 54F of the Act attracts on transfer of capital asset o t h e r t h a n residential house. The term residential house has not been defined in the section or e l s e w h e r e i n t h e A c t . I n t h e i n s t a n t c a s e , t h e c o r e q u e s t i o n t h a t a r i s e s f o r determination, is whether the incomplete flat of the assessee falls within the ambit of 'residential house' as stated u/s 54F of the Act. The reasoning of the AO that residential house need not be uninhabitable is not only devoid of merit but misplaced as well, because the word 'residential house" cannot be equated with a house which cannot used for residence. Incomplete flat, as in the present case of the assessee, is a property under construction and not a residential house. For the purpose of section 5 4 F o f t h e A c t , t h e word "residential house" has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings etc. If one or more such components are lacking, then it cannot possibly be said that the 'residential house' is a complete structure for the purpose of section 54F of the Act. A residential house is a unit, which is complete for habitation having the minimum bare required facilities. The Legislative intent is clear a n d im p l i ci t t h a t t h e w o r d r e si d e n t i a l h o u s e m e a n s a f l a t o r u n i t wh i ch ca n b e actually occupied for residence or being capable of put to use for residence. This test h a s t o b e a p p l ied o n t he d a t e of t r an sf e r of t h e ca p it a l a sse t . If o n t he d a te o f transfer of capital asset the property is fit or residence, though not actually used as such, it will be a transfer of residential house, but if on the date of transfer, asset cannot be put to use for residence, then what is transferred is the right with respect to a property, and not a residential house. Similar view has also been approved by the Hon Punjab a Haryana High Court in the case of Ms. Neena Jain while deciding Wealth Tax Appeal No 17 of 2008 decided on 19 February 2010.

3.3 In view of the facts that appellant transferred a flat under construction, I have no hesitation in holding that the character of the asset so transferred cannot be said to be 'residential house' and, ITA No.2227/M/2013 & ITA No.116/M/2014 4 Mrs. Kalpana Hansraj

therefore, provisions of section 54F of the Act will get attracted in the instant case. The claim of the appellant for exemption u/s 54F of the Act is, therefore, justified in the law. The Assessing Officer erred in holding that that the asset transferred was a residential house, and in denying the exemption u/s 54F of the Act. This ground of appeal is, therefore, decided in favour of the appellant.

4. In view of the aforesaid finding, ground no 2 of the appellant becomes redundant and, therefore rejected.

5. In the result, the appeal is partly allowed."

4. Aggrieved by the above decision of the Ld. CIT(A) allowing the claim of the assessee, the Revenue has come in appeal before us agitating the grant of deduction under section 54F of the Act, whereas the assessee has filed the cross objection in relation to her alternative claim before the Ld. CIT(A) which read as under:

"2. Without prejudice to the above main Ground, even if the said 'Long Term Capital Asset, not being a Residential House' is held to be a 'Residential House' (without conceding to the same), still, Your Appellant is entitled to Exemption U/s. 54 of the Act (which in fact, is more beneficial to Your Appellant) notwithstanding the fact that the Income whereof is chargeable under the head 'Income from House Property' being pre condition to transfer of a Long Term Capital Asset, enumerated in the said Section, no such Income being 'Annual Value' chargeable U/s. 22 of the Act, is chargeable, since the 'Capital Asset', which is subject matter of the impugned Long Term Capital Gain, is under construction from 1981 till date and the property can not be reasonably expected to be let for determination of Annual Value U/s. 23"

The Exemption U/s. 54 of the Act, be Allowed, on Merits, in the alternative."

5. We have considered the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. The Ld. CIT(A) has categorically discussed the factual position of the case that the assessee had booked a residential flat on 15.01.1981. The builder failed to complete the construction and the dispute travelled to the Hon'ble Bombay High Court. The Hon'ble Bombay High Court had appointed a committee/receiver with a direction to complete the construction. The construction of the building was not complete up to Feb 2011 as has been gathered by the Ld. CIT(A) from the ITA No.2227/M/2013 & ITA No.116/M/2014 5 Mrs. Kalpana Hansraj

letter dated 17.02.2011 issued by the said committee of court receiver. The assessee, however, in the year 2005 had sold the unconstructed/under construction unit resulting in taxable long term capital gains. The Ld. CIT(A) has categorically held, after appreciation of the factual matrix of the case, that the property transferred by the assessee could not be termed to be a residential house. The findings of the Ld. CIT(A) have been reproduced above. The provisions of section 54F are beneficial provisions enacted for the purpose of promoting the construction/purchase of residential houses. The property in question sold by the assessee could not be constructed by the builder for a sufficient long time and the same could not be categorised as residential house and therefore the claim of the assessee has rightly been allowed by the Ld. CIT(A) under section 54F of the Act. We do not find any infirmity on the order of the Ld. CIT(A) in this respect. There is no merit in the appeal of the Revenue and the same is accordingly dismissed.

6. Since the assessee's main plea/ground of appeal has been allowed by the Ld. CIT(A) which finding has been further upheld by us, hence we do not deem it necessary to adjudicate upon the alternative plea of the assessee which is rendered academic in nature and is dismissed being infructuous.

7. In the result, appeal of the Revenue as well as cross objections of the assessee is hereby dismissed.

Order pronounced in the open court on 17.04.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 17.04.2015. * Kishore, Sr. P.S. ITA No.2227/M/2013 & ITA No.116/M/2014 6 Mrs. Kalpana Hansraj

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.