Summary: In the present case, the assessee was allotted two flats on two different stories which he claimed as eligible for exemption u/s 54 - no unity of construction between such flats- whether exemption u/s 54 is available in respect of one house or more than one house?
IN THE ITAT MUMBAI BENCH 'B'
IN THE ITAT MUMBAI BENCH 'B'
Smt. Myrtle D'Souza
Income-tax Officer, Ward 19(3)(4), Mumbai*
R.S. SYAL, ACCOUNTANT MEMBER
AND I.P. BANSAL, JUDICIAL MEMBER
IT APPEAL NO. 3168 (MUM.) OF 2011
[ASSESSMENT YEAR 2006-07]
JUNE 20, 2012
R.S. Syal, Accountant Member - This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 28.02.2011, in relation to the assessment year 2006-2007.
2. The only dispute raised in this appeal is against the computation of capital gain. There are several aspects involved in this appeal relating to computation of capital gain, which we will shortly advert to. Briefly stated the facts of the case are that the assessee entered into development agreement dated 31.05.2005 with M/s. Calvin Construction Company in respect of an immovable property at CTS No.B/63, B/64-B & B/64C, Lily Rodrigues House, 14 Waroda Road, Bandra (West), Mumbai - 400 050 for a total consideration of Rs. 1.50 crore. The assessee was to receive two flats on 2nd and 3rd floor of the proposed building. The market value of the property was computed by the stamp duty authorities at Rs. 3,98,31,000 as on the date of sale. The assessee as a co-owner had 50% share in the said property. Accordingly, long term capital gain was determined on the transfer of such property, against which exemption was claimed u/s 54 and 54EC thereby reducing taxable long term capital gain to Rs. Nil. Deduction u/s 54 was claimed for a payment of Rs. 17.50 lakh against the construction cost of the additional flats received. The deduction u/s 54EC was claimed on account of investment in NHAI bonds, on which there is no dispute in the present appeal. While computing long term capital gain, the assessee had shown the value of property as on 01.04.1981 at Rs. 12 lakh, being the cost of acquisition on such date. This value was arrived at as per the valuation report of the registered valuer, a copy of which was submitted by the assessee along with the return of income. The Assessing Officer disputed various aspects of the capital gain, viz, the full value of consideration, cost of acquisition and exemption u/s 54. It was noticed by the AO that the assessee received monetary consideration of Rs. 1.50 crore and non-monitory consideration in the shape of two flats and two stilt car park. The assessee had shown only a sum of Rs. 1.50 crore as full value of consideration. By considering the market rate of the property as per the Ready reckoner, the Assessing Officer valued two flats and car parks at Rs. 2,02,60,512 thereby making total consideration received by the assessee on account of transfer of development rights at Rs. 3,52,60,512. By considering the fact that the stamp authorities valued it at Rs. 3,98,31,000, the Assessing Officer adopted such higher amount as full value of consideration as per the provisions of section 50C of the Act. He however made a reference to the Departmental Valuation Officer for valuing the property as on 01.04.1981 and also as on the date of sale i.e. 31.12.2005. Since the valuation report was not received and the assessment was getting time barred, the A.O. computed capital gain at Rs. 1,44,08,500 by reducing, inter alia, the indexed cost of acquisition at Rs. 59.64 lakh from the total consideration as per section 50C at Rs. 3.98 crore. Thereafter, deduction was allowed u/s 54EC from the above computation. The Assessing Officer also accepted the assessee's claim regarding deduction u/s 54 to the tune of Rs. 8.75 lakh, as relatable to one flat alone, as against claimed by the assessee on both the flats.
3. Apart from assailing the finding of the AO on other aspects, it was contended before the learned CIT(A) that the assessee was entitled to exemption u/s 54 on two flats acquired by her which was erroneously restricted by the A.O. to one flat only. The learned first appellate authority observed that after the passing of the assessment order, the report from District Valuation Officer was received, who valued the property as under:-
|Value as on 1.4.1981 Rs. 6,85,800|
|Value as on 10.01.2006 Rs. 2,91,39,000|
4. On the requisition by the ld. CIT(A), a remand report was submitted by the Assessing Officer through Addl.CIT, a copy of which was provided to the assessee as well. After going through the entire material available before him, the learned CIT observed that the DVO valued the property as on 10.01.2006 at Rs. 2.91 crore as against the stamp value at Rs. 3.98 crore and the sale consideration declared by the assessee at Rs. 1.50 crore. He adopted such value finally determined by the DVO at Rs. 2.91 crore as the full value of consideration for computing the amount of capital gain. From this value, the learned CIT(A) deducted indexed cost of acquisition on the basis of the market value of property determined by the DVO at Rs. 6,85,800 as on 01.04.1981 as against Rs. 24.00 declared by the assessee as per the report of the registered valuer. In this way, the learned CIT(A) determined assessee's 50% share in the amount of capital gain at Rs. 1,28,65,287. After allowing exemption u/s 54EC and 54 at Rs. 16.50 lakh and Rs. 8.75 lakh respectively, the net amount of long term capital gain was determined at Rs. 1,03,40,287 as against Rs. 1,14,26,500 determined by the A.O.
5. The assessee is in appeal against various aspects of the computation of capital gain. The first issue raised, through ground no. 1 in the appeal is against the application of Section 50C of the Income Tax Act in the facts and circumstances of the present case. At the very outset, the ld. AR fairly admitted that similar issue about the applicability of sec. 50C, was raised in the appeal of the other co-owner of the same property, namely, Mrs. Arlette Rodrigues v. ITO  10 taxmann.com 235/46 SOT 199 (Mum.) (URO) decided such issue against the assessee. A copy of the tribunal order dated 18.02.2011 was placed on record. In that view of the matter and respectfully following the precedent, we are of the considered opinion that this contention raised on behalf of the assessee, under identical circumstances as prevailing in the case of Mrs. Arlette Redrogues, who happens to be other co-owner in the same property, deserves to meet the similar fate of rejection. We order accordingly. This ground is not allowed.
6. The next issue raised through ground nos. 2 and 3 reads as under:-
"Reference to the Department Valuation Officer u/s 55A
The learned CIT(A) failed to appreciate that the reference made by the Assessing Officer u/s 55A to the Department Valuation Officer (DVO) to value the property as at 01.04.1981 was erroneous on facts and circumstances prevailing in the case and was contrary to the scheme of the Act and was beyond his jurisdiction and also failed to direct the Assessing Officer not to substitute the value as at 01.04.1981 as arrived by the DVO.
Defects/inconsistencies in the DVO's Valuation of the property as at 01.04.1981.
Without prejudice to the ground no.2 stated hereinbefore, the learned CIT(A) ignored the defects inconsistencies pointed out by the Appellant in the valuation report given by the DVO in response to the reference made by the Assessing Officer u/s 55A."
7. It was argued that the learned CIT(A) was not justified in sustaining the action of the A.O. in referring the matter of valuation of property as on 01.04.1981 to the DVO for determining the cost of acquisition. We note that the assessee claimed fair market value of the property as on 01.04.1981, on the basis of report of registered valuer, at Rs. 24 lakh in total. On the other hand, the DVO valued such property as on 01.04.1981 at a total sum of Rs. 6,85,800. In such a situation, the question arises as to whether reference to the DVO u/s 55A was validly made for determining the value of the property as on 01.04.1981?
8. At this stage it will be relevant to refer the provisions of section 55A as under:-
"55A. Reference to Valuation Officer.--With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer--
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value ;
(b) in any other case, if the Assessing Officer is of opinion--
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf ;
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do,
and where any such reference is made, the provisions of subsections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act."
9. A bare perusal of cl. (a) of section 55A indicates that the Assessing Officer is empowered to make a reference to a valuation officer for valuing the capital asset if he is of the opinion that the value claimed by the assessee is otherwise in accordance with the estimate made by the registered valuer, but such value is less than its fair market value. Obviously, this provision is not applicable to the facts of the instant case inasmuch as the estimate of value made by the registered valuer, was, in the opinion of the AO, on a lower side. If he had been satisfied with the value estimated by the registered valuer, there was no point in making reference to the DVO. The only purpose of the Assessing Officer in making reference to the DVO was to lower the fair market value of the property as on 01.04.1981 so that the cost of acquisition may be reduced and resultantly the amount of capital gain may be enhanced.
10. Now turning to clause (b) of section 55A, it is noted that the Assessing Officer is empowered to make a reference to the Valuation Officer where he is of the opinion that the fair market value of the capital asset exceeds the value of asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed. Rule 111AA provides percentage of value of asset, at 15% and the amount, at Rs. 25,000. Sub-clause (i) of clause (b) is not applicable in this case, as the assessing Officer was inclined to reduce the estimate of fair market value as declared by the assessee and not to enhance it, which is otherwise the prescription of this provision. Thus the applicability of sub-clause (i) of clause (b) of section 55B is also ruled out.
11. Then comes sub-clause (ii) of clause (b) of section 55A, which is in the nature of residual provision for making reference to a Valuation Officer, where in the opinion of the AO it is necessary to do so, having regard to the nature of the asset and the relevant circumstances. The mandate of this provision, for making a reference to the DVO, is activated where the Assessing Officer is of the opinion that "it is necessary so to do". Before making a reference u/s 55A(b)(ii), it is necessary for the AO to record the relevant circumstances on the basis of which he forms the opinion that reference to the valuation Officer is called for. From the assessment order it is manifest that there is no reference to any material on record prompting the AO to form an opinion that reference to the DVO for ascertaining the fair market value of asset was necessary having regard to the nature of the asset and other relevant circumstances. The Hon'ble Rajasthan High Court in CIT v. Hotel Joshi 242 ITR 478/108 Taxman 199 has held that the powers u/s 55A cannot be exercised in a routine manner. It has been held that : "For invoking sub-clause (ii) of clause (b) of section 55A, the Assessing Officer is required to form an opinion on the basis of the material on record that reference to the District Valuation Officer for ascertaining the fair market value of the asset is necessary having regard to the nature of the asset and other relevant circumstances. It is also necessary to record as to why it is necessary to adopt such a course.". From the above judgment it is manifest that unless the AO has formed an opinion on the basis of material on record that reference to the DVO was necessary for ascertaining fair market value of the capital asset, such a reference u/s 55A(b)(ii) is invalid. Similar view has been canvassed by the Hon'ble Gujarat High Court in the case of Hiaben Jayantilal Shah v. ITO  310 ITR 31/181 Taxman 191. In this case also the assessee computed capital gain by adopting the fair market value of the property as on 01.04.1981 as estimated by the registered valuer. The A.O. made a reference to the DVO u/s 55A, who determined such fair market value at a lower level. When the matter came up before the Hon'ble High Court, it was held that the reference made by the AO to the DVO was invalid as no opinion was formed by the AO that the fair market value as claimed by the assessee was required to be disturbed. Various Benches of the Tribunal including the Mumbai Bench inSajjankumar M. Harlalka v. Jt. CIT  100 ITD 418 (Mum.), Pune Bench in Smt. Krishnabai Tingre v. ITO  101 ITD 317 (Pune) and Delhi Bench in Urmila Bawa v. Asstt. CIT  11 SOT 661 (Delhi) have also held that if the fair market value declared by the assessee is supported by the estimate of the registered valuer and the value so claimed is more than the fair market value as per the AO, no reference to the DVO u/s 55A can be made. As admittedly the fair market value of the property declared by the assessee as on 01.04.1981 is duly supported by the report of the registered valuer and further there is no reference to any fact in the assessment order as to the necessity of making a reference to the DVO, we are of the considered opinion that the learned CIT(A) was not justified in adopting fair market value as on 01.04.1981 of Rs. 6,85,800 as worked out by the DVO. The impugned order is set aside to this extent and it is directed to adopt the fair market value of the full property as on 01.04.1981 as shown by the assessee at Rs. 24.00 lacs, which is backed by the report of the registered valuer.
12. The ground no.4 reads as under:-
"Defects/inconsistencies in the DVO's Valuation of the property on the date of issue.
The learned CIT(A) ignored the defects / inconsistencies pointed out by the appellant in the valuation report given by the DVO in relation to the property on the date of sale in response to the reference made by the Assessing Officer u/s 50C of the Act."
13. In support of this ground, by the learned AR contended that the DVO was not justified in determining the fair market value of the property on the date of transfer at Rs. 2.91 crore. In this connection it is necessary to note that the assessee declared sale consideration at Rs. 1.50 crore. The AO adopted stamp value u/s 50C at Rs. 3.98 crore and the DVO valued the property at Rs. 2.91 crore. The difference in the value as determined by the AO and DVO has arisen due to the excess area wrongly considered by the AO. Insofar as valuation aspect is concerned, both the AO as well as DVO were on the same platform by applying the rate of Rs. 8200 per square feet. We have upheld the action of the Assessing Officer in applying the provisions of section 50C by dismissing ground no. 1 raised by the assessee, dealt with above. Since there is no difference of opinion between the assessee and the Revenue as regards the built-up area transferred, we are restricting ourselves only to examining as to whether the DVO was justified in adopting the rate of Rs. 8200 per square feet.
14. The learned AR contended that the registered valuer adopted the rate of around Rs. 4,182 per sq.feet. It was argued that the rate adopted by the registered valuer was on the basis of Stamp Duty Ready Reckoner, 2005 for Mumbai, a copy of whose relevant part was placed on page 228 of the paper book. We have perused the copy of such Stamp Duty Ready Reckoner, 2005. It is observed that the rate of Rs. 45,000 per sq.mtr. or Rs. 4182 per sq. feet has been given against the column "Dev. land FSI". When we peruse the next column of the same Ready Reckoner, which provides rates for Land plus building in respect of residential house, there we find rate of Rs. 75,000 per sq.mtr. It is axiomatic that the assessee did not transfer land, but the residential building. In such a situation it is beyond our comprehension as to how the assessee's contention for applying rate of Rs. 4,182 per sq.ft., which is applicable in respect of developed land FSI, can be applied to a residential building, the rate for which has been given at Rs. 75,000 per sq. meter. Obviously, the assessee transferred residential building and not Land. We fail to find any logic in the contention of the ld. AR that the rate as applicable to 'Land' should be applied, when the property under transfer is 'Residential Building'. In our considered, it is the rate applicable to the residential building which should have been applied. We order accordingly. When we apply such rate at Rs. 75,000 per sq.mtr., the rate per sq.feet comes to Rs. 6,970 per sq.feet, as against Rs. 8,200 per sq.ft. adopted by the DVO and Rs. 4,182 per sq.ft. considered by the registered valuer. We direct the AO to compute capital gain by adopting the rate of Rs. 6,970 per sq.ft. u/s 50C of the Act. This ground is partly allowed.
15. Ground no.5 raised by the assessee reads as under:-
"Restricting exemption u/s 54 only in respect of one house
The learned CIT(A) erred in law in restricting the deduction u/s 54 in relation to only one house though the Appellant had acquired two houses in the same building."
16. It is relevant to note that the assessee was allotted two flats on 2nd and 3rd floors of the proposed building which the assessee claimed to have purchased for the purposes of exemption u/s 54. The Assessing Officer restricted the exemption to one flat by following the order passed by the Special Bench order of the Tribunal in the case of ITO v. Ms. Sushila M. Jhaveri  107 ITD 327/14 SOT 394 (Mum.). The view taken by the AO was echoed by the learned CIT(A).
17. Before us the learned Counsel for the assessee contended that exemption u/s 54 ought to have been allowed in respect of both the flats as against restricted by the authorities below to one flat alone. In support of his contention, he relied on the judgment of the Hon'ble Karnataka High Court in CIT v. D. Ananda Basappa  309 ITR 329/180 Taxman 4 and the order passed by the Delhi bench of the Tribunal inACIT v. Smt. Gita Duggal ITA No.3613/Del/2010. A copy of the said order dated 07.06.2011 passed by the Delhi Bench of the Tribunal was placed on record. Per contra, the learned Departmental Representative, apart from relying on the Special Bench order considered by the authorities below, also placed significant reliance on the judgment of the Hon'ble jurisdictional High Court in K.C. Kaushik v. P.B. Rane, Fifth ITO  185 ITR 499/51 Taxman 51 (Bom.). It was also contended that the Hon'ble Punjab & Haryana High court in Pawan Arya v. CIT  200 Taxman 66/11 taxmann.com 312 has also reiterated similar view in allowing exemption u/s 54 in respect of one property only. It was submitted that since the assessee was allotted two flats on two different stories, there was no question of treating these two independent flats as one house.
18. We have heard the rival submissions and perused the relevant material on record. The short controversy is as to whether exemption u/s 54 is available in respect of one house or more than one house. In the present case, the assessee was allotted two flats on two different stories which he claimed as eligible for exemption u/s 54. Admittedly there is no unity of construction between such flats. The Special Bench of the Tribunal in the case of Sushila M. Jhaveri (supra) has categorically held that the exemption u/s 54 is available only in respect of one house and not more than one. It is true that the Hon'ble Karnataka High Court in the case of D. Ananda Basappa (supra) has entitled the assessee to exemption u/s 54 in respect of two residential houses, however it is also equally true that the Hon'ble jurisdictional High Court in the case ofK.C. Kaushik (supra) and the Hon'ble Punjab & Haryana High Court in Pawan Arya (supra) have held the assessee to be entitled to exemption u/s 54 only in respect of one residential house. The learned AR strongly argued that the judgment in the case of Karnataka High Court be followed in preference to that of the special bench of the Tribunal and other High Courts as noted above. A feeble unsuccessful attempt was made to distinguish the judgment of the Hon'ble jurisdictional High Court in the aforenoted case. In our considered opinion this contention deserves the fate of dismissal at the very outset for the reason that in the case of K.C. Kaushik (supra) it has been held that : "in the absence of any provision to the contrary, in my judgment, the petitioner is entitled to avail of the relief in respect of the capital gain arising on the sale of his flat in 1979 against the flat purchased in that year as also against the flat purchased on July 26, 1980. It has, of course, to be adjusted against one of the flats only. ……… I am inclined to hold that it is for the petitioner to claim relief under this section against the purchase of any one of the flats provided that the other conditions mentioned in the section are satisfied". A cursory look at the mandate of the above judgment fairly indicates that the exemption u/s 54 is available only in respect of one house and not more than one house. The judgment of the Hon'ble jurisdictional High Court which is binding on the Tribunal, can under no circumstances, be ignored in preference to the judgment of any other Hon'ble High Courts. It is relevant to note that the decision of the Delhi Bench of the Tribunal in the case of Gita Duggal (supra) is distinguishable inasmuch as in that case the assessee was allotted basement and ground floor on which exemption was given but the said benefit was denied on the first floor and second floor as they were let out. There was no dispute that all the basement, ground floor, first floor and second floor constituted one residential house, for which the Tribunal was pleased to decide the issue of exemption in assessee's favour. The facts of the instant case are different inasmuch as the assessee was allotted two flats on two different stories. It is not the case of the assessee that both the flats on different floors were used as one residential house. Naturally it could not have been so for the reason of these two flats situated on different stories can not constitute one house. Respectfully following the judgment of the Hon'ble jurisdictional High Court and the special bench in the above referred cases, we hold that the learned CIT(A) was justified in restricting the benefit of exemption u/s 54 only in respect of one flat. This ground is not allowed.
19. In the result, the appeal is partly allowed.