TMI Blog2014 (1) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house - the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s - 54/54F - It is neither expressly nor by necessary implication prohibited – Decided in favour of Assessee. Non-monetary consideration – Cost Indexation Index – Held that:- Following Commissioner of Income Tax Versus Gita Duggal [2013 (3) TMI 101 - DELHI HIGH COURT] - Non-monetary consideration have to be taken as consideration towards purchase of property – and in Commissioner of Income-tax Versus Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT] it was held that the benefit of indexation shall be available from the year when previous owner first acquired it. If expression "held by assessee" interpreted differently to give benefit of indexation from the period when assessee acquired it, would defeat the purpose of statute. If the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Department. (5) The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. (6) The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. Grounds of Appeal - ITA No. 5782/M/2010 (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that out of the six flats offered to the appellant, his three brother being co- owners and parents and the sister having life interest in the property which is given to the Developer for Development, is entitled to claim exemption for one flat i.e., 1/4th of the total consideration received and not 1/6th of the consideration received. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) after holding that as the development of property could not have been possible without the consent of the parents and sister, the developer had agreed to give six flats free of cost, one flat each to four brothers owners and one flat each to the parents and sister, erred in holding that the appellant is only entitled to 1/4th of the total consideration as against 1/6th of the total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a building of his uncle 'Wagh House'. This property was sold to Nirmit Developers for a monetary consideration of Rs. One Crore plus the builder was to provide to the owners free of cost 6 flats measuring 617 sq. ft., each and two garages in the building to be constructed by him. The appellant had claimed the flats and garages as exempt from capital gains u/s. 54 of the Act. The AO took the view that on flat for each co-owner could only be deductible u/s. 54 of the Act. The value of the remaining two flats and garages was considered by the AO to be includible in the sale consideration and not exempt u/s. 54. After including the value of sale consideration, capital gain corresponding to the share of the appellant was worked out to Rs. 33,39,895/-. First the AO initiated proceedings u/s. 154 to correct this mistake, but after receipt of the appellant's reply dropped the rectification proceedings. Instead the assessment was reopened u/s. 147 of the Act. 4. Assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee and the Assessment Order, he held that the deduction as claimed by the appellant u/s. 54 was allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Sushila Jhaveri [292 ITR (AT)1(Mumbai)(SB)], he held that exemption u/s. 54 should be allowed to the appellant for one house only since the appellant alongwith 3 other co-owners had acquired by investing in 6 new houses and 2 garages, that the deduction had to be restricted to only 4 houses thereon and that no deduction could be allowed u/s. 54 for the remaining 2 houses and 2 garages. 5.1 With respect to the claim of the assessee that the he was 1/6th owner and not the 1/4 owner due to the Family Arrangement Deed made out between all the family members dt. 20-03-1994 he held that to Pg. 14 of the Paper Book, that the parents and the sister had a right to occupy the flat till their demise and without their permission the property could not have been put for development by entering into agreement with M/s. Nirmit Developers, that Will of Mr. Dinkar Wagh gave the right to the parents and sister of the appellant to reside in the house till their death, that the said right did not make the parents and the sister of the appellant as the owners of the property, that their rights were limited till the date they continued to live and after that the flats reverted back to the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention raised by the revenue before that Court was rejected in the following terms: "A plain reading of the provision of Section 54(1) of the Income Tax Act discloses that when an individual-assessee or Hindu undivided family-assessee sells a residential building or lands appurtenant thereto, he can invest capital gains for purchase of residential building to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of Section 54(1) and 54F of the Income Tax Act discloses that, a non-residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income Tax Act lays down that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction u/s. 54/54F. It is neither expressly nor by necessary implication prohibited........" Respectfully following the same, we decided the effective Ground of Appeal in favour of the assessee. Appeal filed by the assessee stands allowed. 7. Though, there are Four Grounds of Appeal in the appeal filed by the AO, but effectively they pertain to two issues only. First is decision of the FAA wherein he was held that non-monetary consideration in terms of two flats received from developer was adjustment of the sale consideration towards purchase price of flats. Second issue is about date of Cost Inflation Index. As discussed earlier, FAA while deciding the appeal filed by the assessee had held that consideration received by the assessee in favour of two flats from the deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Jurisdictional High Court delivered in the case of Manjula J. Shah. He relied upon the case of Manjula J. Shah (249 CTR 270). After hearing the rival submission, we find that issue is squarely covered in favour of the assessee by the said decision. Hon'ble Bombay High Court has held as under: "The indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under s. 48, that expression has to be understood as defined under s. 2. Explanation 1(i)(b) to s. 2(42A) provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29th Jan., 1993, as per Expln. 1(i)(b) to s. 2(42A), the assessee is deemed to have held the capital asset from 29th Jan., 1993. By reason of the deemed holding of the asset from 29th Jan., 1993, the assessee is deemed to have held the asset as a long-term capital asset. If the long-term capital gains liability has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in cl. (iii) of the Explanation to s. 48 that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Expln. 1(i)(b) to s. 2(42A). If the meaning given in s. 2(42A) is not adopted in construing the words used in s. 48, then the gains arising on transfer of a capital asset acquired under a gift or will will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore, the argument of the Revenue which runs counter to the legislative intent cannot be accepted...... Apart from the above, s. 55(1)(b)(2)(ii) provides that where the capital asset became the property of the assessee by any of the modes specified under s. 49(1), not only the cost of improvement incurred by the assessee but also the cost of improvement incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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