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2019 (12) TMI 1588 - AT - Income TaxCapital gain computation - Calculation of the sale consideration - development agreement for construction of the flats - property belongs to 2 owners - cost the construction determined by the AO which was collected from the developer - Deduction u/s 54 - HELD THAT:- Assessee has valid point that AO should have considered only the cost of construction, not the cost of the project, as per the submission made by the developer and the cash component will definitely be part of the project cost to the developer when the AO adopts the actual cost to the developer as the relevant cost for the fair value to the assessee. He should have restricted himself to calculate the sale consideration only to the portion of relevant cost of construction only relevant for the flats allotted to the assessee and he should have not considered the cash component which is already embedded in the cost of project. Accordingly, we direct the AO to remove the cash component from the sale consideration. With regard to other cost of expenditure for which the developer has not provided the breakup of the cost of project/construction, we direct the AO to collect the breakup of the cost of the project/construction from the developer and calculate only the cost of construction and eliminate all those promotional expenditures and the expenditure which is not relating to the cost of construction. Therefore, we are inclined to remit this issue to the file of AO to re-calculate the cost of construction. Accordingly, this ground raised by the assessee is allowed for statistical purposes. Deduction u/s 54 - Combining of flats - how combined portion of the area will be treated as one single unit? - We notice that assessee has modified the development agreement for construction of the flats from 40 flats to 36 flats and 2 penthouses and distributed between them as per terms of original agreement. Therefore, the modified agreement and its schedule, which is placed on record at page no. 43 of the paper book clearly indicates that the intention of the developer and the assessee to make 2 penthouses in 11th and 12th floor as penthouses and assessee was regularly pleading that these 2 penthouses were constructed by combining 4 flats at floors 11th and 12th. AO has rejected the contention of the assessee with the observation that there is no record that this combing of flats were made during the impugned assessment year. We cannot accept the contention of the AO for the reason that the purpose of modification of the development agreement was to combine 4 flats and to make 2 penthouses. Therefore, we are in agreement with the submission of Ld. AR that there exist 2 penthouses at the site developed by the developer as per the terms of agreement in modified development agreement. Development agreement was entered by the assessee along with his son with share of 73:27 between them and it is clear that there exist 2 penthouses and two individual assessee . Therefore, each assessee will get separate exemption u/s 54F of the Act. This benefit is legally available to both the assessee . There are catena of cases in which courts have held that when there exists two portion of flats with one ketchen then the whole combined portion of the area will be treated as one single unit for the purpose of granting exemption u/s 54 as well as 54F. Accordingly, we direct the AO to grant exemption u/s 54F of the Act to each assessee and as per their choice. On record, assessee prefers to get penthouse occupied by his daughter as exemption u/s 54F and by legally AO should allow this penthouse as exemption u/s 54F of the Act. Accordingly, this ground raised by the assessee is allowed. Classification of transaction of sale into land and super structure - CIT-A distributing the sale proceeds into sale proceeds attributable to the land and super structure - flat purchaser has irrecoverably withdrawn his rights for any future FSI /TDR benefits awarded to the owners - assessee determined the capital gains in 2 portions as sale proceeds attributable to the land and determined the capital gain as long term capital gain and second portion as sale proceeds attributable to super structure and determined the capital gain as short term capital gains - HELD THAT:- We notice that in the case of CIT v Citibank [2003 (4) TMI 92 - BOMBAY HIGH COURT] it was held that as per the above ratio, the flat owners will get right of possession as well as right on portion of the undivided share in the land. We notice that as per the proportionate area of flats occupied by him in respect of the total area of the building i.e. undivided share, the owner of the flat will get an automatic membership in the cooperative society in proportion to the undivided share. Since cooperative society owns the total area of the land and being a member of the society, he gets the ownership of the undivided share. As per the sale deed, it is clear that assessee gets a membership on the cooperative societies, it does mean that flat owners not only owns a super structure and also ownership right on the undivided share, therefore we are inclined to accept the findings of Ld. CIT(A) in distributing the sale proceeds into sale proceeds attributable to the land and super structure. Accordingly, we reject the contentions of the revenue and dismiss the grounds of appeal raised by the revenue.
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