TMI Blog2003 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... s that as per law, he was entitled to the exemption under s. 54 because of his acquisition of the row houses and thus the capital gains of Rs. 1,08,30,625 in respect of a flat at Mumbai were not taxable as undisclosed income of the appellant. 5. Without prejudice to the above grounds, even presuming that the capital gains on sale of the flat at Mumbai were taxable, the same could not be considered as undisclosed income of the appellant under Chapter XIV-B of the IT Act. 6. The appellant craves leave to add, alter or amend any of the grounds of appeal." 2. The assessee has also raised following additional ground vide application dt. 1st March, 2003. "Without prejudice to the grounds of appeal filed along with the appeal memo, the appellant submits that if the capital gains are taxed in the hands of the appellant, the same are required to be taxed at the rates as per s. 112 of the IT Act following the ratio of Tribunal decision in the case of P.A. Chandran vs. Asstt. CIT (2000) 69 TTJ (Coch) 566." 3. Shri S.U. Pathak, the learned counsel appeared on behalf of the assessee. The learned counsel briefly explained the facts that late Smt. Vaishnabai Nagpal, the mother of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E-12 14,92,000 E-13 14,92,000 E-14 14,92,000 1,18,06,000 Restricted to 1,18,06,000 Taxable capital gains NIL Gross Total Income NIL Total income NIL" It was contended on behalf of the assessee that Master Krishnagopal Nagpal entered into a joint venture agreement with Samant Estates (P) Ltd. for construction of the Raw houses in their project Yashodanandan at Vimannagar, Pune, and invested capital gain in the said joint venture for availing deduction under s. 54 of the IT Act, 1961, (hereinafter referred as the Act ). The AO observed that as per s. 54 Master Krishnagopal Nagpal should have obtained possession of these flats on or before 30th April, 1997. The assessee paid a sum of Rs. 1,20,00,000 to M/s Samant Estates (P) Ltd. in and around April, 1995, being the total amount payable towards construction. M/s Samant Estates (P) Ltd. allotted 7 row houses against investments and profits as per the terms of the joint venture executed between Samant Estates (P) Ltd. and the assessee. It was contended on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed in respect of seven row houses are similar. The learned counsel submitted that it is an undisputed fact that possession of the flat at Bombay was given in April, 1994, and capital gains, if any, is assessable in asst. yr. 1995-96. The Department has not disputed the fact that possession of the flat at Bombay sold by the assessee was given in April, 1994. The period of three years allowed for construction of residential house in order to avail the exemption under s. 54 of the Act will therefore, have to be reckoned w.e.f. April, 1994. The possession of seven row houses was received by the assessee in November/December, 1996. Therefore, the fact that the assessee invested Rs. 1.20 crores for construction of seven row houses before completion of three years from the date of transfer is also not in dispute. 5. The AO has held that the amount of sale proceeds of flat at Bombay has been invested for completing the construction of Yashodanandan project under the joint venture agreement which represents capital contribution made for carrying out the business activity in joint venture with Samant Estates (P) Ltd. The amount cannot be treated as invested in purchase of a residenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion before the Hon ble Bombay High Court was whether the assessee could claim exemption from capital gain in respect of the investments made in property at Priyadarshini or investments made in Kalpana property. This was not a case where the assessee claimed exemption under s. 54 with reference to investments made for purchase of a flat at Kalpana in July, 1980 and flat in Priyadarshini in October, 1979. The Tribunal has also observed that the Hon ble Bombay High Court at p. 503 of 185 ITR has observed that capital gain can be adjusted against one of the flats only. However, this observation has to be understood in the context of the facts and controversy before the Hon ble Bombay High Court. 7. The learned counsel also placed reliance on the decision of Tribunal Bombay in the case of Fulwanti C. Rathod vs. ITO in ITA No. 1092/Mum/1995 dt. 3rd May, 2002, in which it was held that investments made in more than one residential house will qualify for exemption under s. 54F. 8. The learned counsel also placed reliance on the circular dt. 25th March, 1997 in which it was clarified by the Board that s. 54 of the Act as is existed in the relevant year, lays emphasis on the use of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter XX-C does not apply to joint venture transactions. He placed a copy of order dt. 5th Sept., 1995, passed by the Appropriate Authority in the case of one M/s Mantri Housing and Constructions Ltd. in which it was observed that the joint venture agreement for common exploitation of development rights do not constitute transfer within the meaning of term transfer as defined in s. 269UA(f) of the Act. The learned counsel also submitted that the TRO had initiated attachment proceedings and auction of these seven row houses for recovery of demand created against the assessee. Thus, the Department had accepted the assessee to be the owner of these row houses acquired in accordance with the terms and conditions mentioned in the joint venture agreement supported by further seven separate agreements executed in relation to each of those seven row houses. 12. The learned counsel thus strongly supported the assessee's claim for grant of exemption under s. 54 in respect of investment made for purchase/ construction of seven row houses. 13. The learned Departmental Representative submitted that the flat at Bombay was sold vide agreement dt. 8th Sept., 1993, for total consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Samant Estates (P) Ltd. to give/allot seven row houses to the assessee in Yashodanandan project to be constructed on plot No. 27, Lohagaon, Pune, towards the share in the profits and investments made by him in the joint venture as mentioned above. In the original agreement it was stated that the assessee is not entitled to any share in the profits or losses of the joint venture. In this agreement dt. 28th July, 1995, it has been mentioned that all the seven row houses will be given/allotted towards share in the profit and investment made by him. A copy of agreement dt. 22nd July, 1995, inter alia, states that M/s Samant Estates (P) Ltd. (called promoter) have executed a joint venture with the assessee Mr. K.G. Nagpal to develop the property at village Yerawada, Tal. Haveli, Dist. Pune and they have completed the building under the name and style of Janardhan . Under this agreement it is mentioned that Samant Estates (P) Ltd. have agreed to give five row houses to the assessee in Yashodanandan project constructed on Plot No. 27 Lohagaon and one row house No. E-11 in Yashodanandan. The learned Departmental Representative on the strength of these different agreements executed bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasing or constructing a residential house . If the legislature intended to mean more than one residential units, it should have used simple words like residential house or house. The Tribunal rejected the assessee s claim that expression "any residential use" would include more than one unit of residential house. 16. The learned Departmental Representative contended that if any exemption under s. 54 is allowable, it can be allowed only in respect of cost of acquisition of one row house and not on the investment made for acquiring seven different row houses. He also pointed out that seven row houses cannot be treated as forming part of one composite unit. It is well known that row house is a separate and independent house. The row houses are divided by a partition wall. No one would ever imagine that seven different row houses can be treated as a residential house . It is true that s. 54 is a beneficial provision but exemption can be granted only to the extent it is specifically provided in s. 54. The learned Departmental Representative further placed strong reliance on the judgment of the Bombay High Court in the case of K.C. Kaushik vs. P.B. Rane, ITO in which the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on the decision of Tribunal Cochin Bench in the case of P.A. Chandran vs. IAC (2000) 69 TTJ (Coch) 566 in which it was held that tax on capital gain forming part of block assessment is leviable at 20 per cent as provided in s. 112. The learned counsel was fair enough to state that he is of the view that since the income from capital gain is includible in the block assessment, the rate of 60 per cent has to be applied in view of clear provision contained in s. 113. Since there is conflict between s. 112 and 113, the view which is favourable to the assessee should be adopted, says the learned counsel. He submitted that he has raised this additional ground with a view to keep this issue alive. 20. The learned counsel submitted without prejudice to the various, arguments submitted by him that if the Tribunal is not inclined to grant exemption in respect of total investment made for construction of seven row houses, deduction in respect of investment made for one row house should be allowed. The learned counsel also submitted that the AOP has already been assessed to tax in respect of profit derived in the aforesaid joint venture. A copy of the assessment order in the case of M/s S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee being an individual or a HUF the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "income from house property" (hereinafter in this section referred to as the original asset) and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say: (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset) the difference between the amount of the capital gain and the cost of the new asset shall be charged under s. 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa." It is clear from a plain reading of the aforesaid provision that s. 13(1) and (2) have been made subject to the expression "unless there is anything repugnant in the subject or context". It will, therefore, be necessary to examine the subject or context in relation to which the expression a residential house has been used in s. 54 of the Act. It is not correct to say for all the words in the singular appearing in any Central Act the plural shall be substituted. All that s. 13 means is that the word need not be considered as a singular under all circumstances, but it merely indicates the intention of the legislature that the words may be interpreted in the plural wherever the circumstances required that it should be so construed. In order to get its true import, it is necessary to view the enactment in retrospect, the reasons for enacting it, the evils it was to end and the objects it was to serve. The Act has, therefore, to be viewed as a whole and its intention determined by construing all the constituent parts of the Act together and not be taking one wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 1979, he sold the said flat for Rs. 1,25,000 and on the same date purchased another flat in Jai Priyadarshini Co-op. Housing Society Ltd. at Khar, Bombay (for short Priyadarshini ) for a sum of Rs. 1,11,000. He resided in the Khar flat from 24th Oct., 1979, to 25th July, 1980. On 26th July, 1980, he sold the Khar flat also for a sum of Rs. 1,20,000 and purchased another flat on the same date in Kalpana Co-op. Housing Society Ltd. (for short Kalpana ), Santacruz, Bombay. Thereafter, he started residing in this flat. However, he vacated the flat on 16th May, 1981, on being transferred to Baroda, From 27th May, 1981 to 1st July, 1983, the flat in Kalpana was let out to the Bank of Baroda, his employers. For asst. yr. 1980-81, the assessee claimed that the surplus of Rs. 75,860 arising on the sale of the flat in Survarnadeep on 24th Oct., 1979, was not taxable as he had invested more than the said amount in the purchase of a flat in Kalpana on 26th July, 1980, for his residence. The ITO partly accepted the claim and held that the surplus was invested in the purchase of flat in Priyadarshini on 24th Oct., 1979, and not in the purchase of flat in Kalpana on 26th July, 1980, as claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Hon ble Bombay High Court that the Hon ble High Court has specifically given a finding in relation to interpretation of s. 54 that investment made for acquiring only one of the flats would be eligible for grant of exemption under s. 54 of the Act. The decision of the Hon ble Jurisdictional High Court in relation to interpretation of this very provision viz. s. 54 holding that benefit under s. 54 can be allowed only in respect of one of the flats purchased by the assessee, is binding and this in our humble view clinches and concludes the point in issue. 29. Let us look at some of the provisions relating to exemption in respect of capital gains arising from transfer of house properties contained in IT Act. Sec. 53 as it exited upto 1993-94 provides that long-term capital gain arising from the transfer of a residential house will be exempt from tax in cases where the consideration received on such transfer does not exceed Rs. 2 lakhs. In cases where such consideration exceeds Rs. 2 lakhs, the capital gain would be exempt proportionately. The exemption under this section was not available if the assessee owns any other residential house on the date of such transfer. 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHBA. We are, therefore, of considered view that the assessee is entitled to investment made for purchase of a residential house only i.e., investment made in respect of purchase/ construction of only one row house subject to fulfilment of other conditions prescribed in s. 54. 32. The contention of the learned Departmental Representative that the amounts given by the assessee to Samant Estates (P) Ltd. was a capital contribution for business of joint venture would not disentitle the assessee to get deduction under s. 54 in respect of investment made for purchase/ construction of one row house as the possession over row houses constructed by the assessee was obtained well before the period prescribed under s. 54. Sec. 54 nowhere places a restriction about the mode of acquisition of a residential house property. It does not provide that if the residential house is acquired/constructed within period specified in s. 54 as a result of business agreement like the joint venture agreement in the present case, the assessee would not be entitled to get benefit under s. 54. It is further provided in s. 54 that if the new asset viz. a residential house purchased by the assessee is transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esidential house". The assessee has entered into separate agreement with M/s Samant Estates (P) Ltd. in respect of all the seven row houses. Each house is independent and separate. Some of the row houses situated adjacent to each other are also divided by a partition wall. The assessee has himself let out only one out of seven row houses to M/s L T in asst. yr. 1998-99. This clearly shows that each row houses was capable of being used as one house independently of other row houses. It is beyond comprehension that seven row houses acquired by the assessee pursuant to seven separate agreement in furtherance to the joint venture agreement can be treated as a residential house . In our view each row house is a separate and distinct residential house. The assessee is entitled to grant of deduction in respect of investment made in only one out of seven row houses acquired/constructed by him. A perusal of the assessment order shows that cost of row house No. B-16 is the maximum cost which is Rs. 21,78,000. The cost of other row houses as per the details mentioned hereinbefore is less than that. Since the assessee has a choice of adopting the most beneficial recourse, we direct the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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