2018 (2) TMI 180 - AT - Income Tax

Capital gains on the transfer of land - Exemption u/s. 54F - Held that - Capital gains on the transfer of land for development did not arise in the year under consideration and accordingly direct the AO to exclude the capital gains on the transfer of land given for development. Coming to the capital gain on transfer of constructed area which was considered as a second transaction as can be seen from the details placed on record most of the semi-constructed structures in Block-A were sold in August 2001 which pertains to AY. 2002-03. Therefore as far as the capital gains on Block-A (entirely) does not pertain to the year under consideration. For sale in Block-B is concerned as per the details the capital gains arise in AYs. 2002-03 2003-04 and 2004-05. As stated by the Ld. Counsel for assessee only five flats in Block-B are sold in financial year relevant to the impugned assessment year. Therefore any long term capital gains in those five flats on sale of proportionate un-divided share of land and short term capital gain on the sale of super structure/flat can only be brought to tax in the year under consideration. Accordingly AO is directed to re-work out the capital gains only that extent and the share of assessee Dr. Sudhir Naik in that can only be brought to tax in his case. Claim of 54F/54 - 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 - Held that - As seen from the agreements 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 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.

Summary

Issues Involved:
1. Computation of Capital Gains.
2. Claim of Deduction under Section 54F.
3. Compliance with Tribunal Directions.
4. Correctness of Indexation Cost.
5. Eligibility for Exemption under Section 54F.

Issue-Wise Detailed Analysis:

1. Computation of Capital Gains:
The primary issue in these appeals revolves around the computation of capital gains. The families involved had properties in Vidya Nagar, Hyderabad, which were given for development. The developer constructed flats, and the owners received a share of these flats. The ITAT noted that there are two sets of transactions: transfer of land in exchange for flats and the subsequent sale of these flats. The Tribunal directed that capital gains should be computed separately for these transactions.

2. Claim of Deduction under Section 54F:
The assessees claimed deductions under Section 54F, arguing that they did not own more than one house except the new house purchased. The Assessing Officer (AO) rejected this claim, stating that the assessees were entitled to multiple flats, thus not meeting the conditions of Section 54F. The Tribunal directed the AO to re-examine the eligibility for deduction under Section 54F, considering the date of sale of various apartments and the claim.

3. Compliance with Tribunal Directions:
The Tribunal previously set aside the assessment, directing the AO to recompute the capital gains separately for the transfer of land and the sale of flats, following the principles laid down in the case of Dr. Maya Shenoy vs. ACIT. The AO, however, recomputed the gains without fully adhering to these directions. The Tribunal reiterated the need to follow the established principles and recompute the gains accordingly.

4. Correctness of Indexation Cost:
The AO, in a subsequent modification order, revised the indexation cost, taking into account the years 1994-95 and 1997-98 for the long-term capital gains. The Tribunal noted that this action indicated the AO's awareness that the transfer occurred in those years, not in the assessment year under consideration. The Tribunal directed the AO to exclude the capital gains on the transfer of land given for development in the year under consideration.

5. Eligibility for Exemption under Section 54F:
The Tribunal observed that the AO and CIT(A) did not correctly consider the eligibility for exemption under Section 54F. The Tribunal directed the AO to re-examine this aspect, considering whether the assessees owned any other house at the time of investing in the new house.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to:
- Recompute the capital gains only on the sale of five flats and the proportionate amount pertaining to the assessees.
- Re-examine the claim of deduction under Section 54F.
- Provide due opportunity to the assessees during the reassessment process.

The Tribunal emphasized adherence to its directions and the principles established in the case of Dr. Maya Shenoy vs. ACIT and the AP High Court's ruling in Potla Nageswara Rao vs. DCIT. The orders of the AO and CIT(A) were set aside to be redone as per these directions.