ITO vs. Narinder Kaur Bhatia (ITAT Mumbai)

DATE: November 12, 2014 (Date of pronouncement)
DATE: November 14, 2014 (Date of publication)
AY: 2007-08
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S. 54: Purchasing the undivided share of a co-owner in a new flat constitutes a "purchase" & is eligible for exemption

(i) The assessee purchased a residential flat on 08.01.1981, which was sold on 07.02.2007 for a sale consideration of Rs.1,25,00,000/-. The long term capital gain on such sale amounted to Rs.1,14,63,650/-. Before the said sale, assessee had entered into an agreement to purchase a residential flat, being flat no. 501 Elegant Orchid at Santacruz (west), Mumbai along with her son, Gurdeep Singh Bhatia and daughter-in-law, vide agreement dated 28.12.2005 and payment of Rs.5,00,000/- was made. Another payment of Rs. 5 lakhs was made on 16.05.2006. This payment of Rs. 10 lakhs was claimed as exemption u/s 54, which has been restricted to Rs.5 lakhs by the CIT(A). Thereafter the assessee had entered into an agreement with her son Gurdeep Singh Bhatia on 20.03.2007, who was the co-owner, for purchasing his undivided share in the new flat for sum of Rs. 1,10,00,000/-. The payment schedule has already been recorded above. The department’s case is that, firstly, the purchase agreement for new flat on was 28.12.2005, which is beyond the period of one year before the date of sale and secondly, the purchasing of undivided share in the flat from the son does not amount to purchase of a flat; and therefore on these two counts, exemption u/s 54 is not available to the assessee. On the first issue CIT(A) has held that the payment of purchase consideration to the extent of Rs.5 lakhs which was made on 16.05.2006, falls within the period of one year before the date of sale of original flat and hence this amount is eligible for exemption u/s 54. The other part of the Rs. 5 lakhs paid on 13.10.2005 was denied by him, as it was beyond period of one year. To this extent the finding of the CIT(A) is factually and legally correct therefore no inference is called for and same is affirmed.

(ii) Now coming to the other part of the issue, whether purchasing of share of the son who is co-sharer in the flat amounts to purchase or not. We find that this issue, in principle, is settled by the decision of Hon’ble Supreme Court in the case of CIT Vs. T.N. Aravinda Reddy (1979) 120 ITR page 46 (SC) wherein it was held that the word ‘purchase’ in section 54(1) had to be given a common meaning, that is, buying for a price or equivalent of a price on by payment in kind or adjustment towards debt or for other monitory consideration. In the case before the Hon’ble Supreme Court, four brothers were the members of HUF, who had partitioned a joint family property, leaving an undivided common house. The three brothers executed a release deed in favour of the elder brother for a consideration which was treated as purchase of the house by the elder brother. The elder brother had sold one of his house and out of the sale proceeds, paid the consideration to his brothers to acquire their shares in the house. In this context it was held that the elder brother would be entitled to relief u/s 54(1). Similarly the Hon’ble Gujarat High Court in CIT Vs. Chandan Ben Maganlal has held that sale proceeds invested for purchase of interest in the residential house owned by assessee’s husband and son amounts to purchase, hence entitled for exemption u/s 54. There are other High Court decisions on this score, which have been referred and relied upon by the CIT(A). Thus, following the said proposition laid down by the Hon’ble courts, we hold that the reasoning and the conclusion drawn by the CIT(A) is legally correct and the same is upheld.

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