Section 54F – Capital gains – Investment in residential house – Flat was owned by a co-operative housing society on a piece of land which was granted under a long-term lease – Eligible for deduction

 [ACIT vs. Jaya Uday Tuljapurkar; dated 28^th September, 2015; Mum. ITAT]

Section 54F – Capital gains – Investment in residential house – Flat was owned by a co-operative housing society on a piece of land which was granted under a long-term lease – Eligible for deduction

The assessee, an individual, was a joint owner of a residential property in the nature of a flat. He had received the said property under a Will dated 15^th October, 2006 made by his father. The flat complex was owned by a co-operative housing society on a piece of land which was granted under a long-term lease. The father of the assessee was a member of the said society and owned the flat. After his death, the assessee received half a share, the other half going to his mother. These co-owners sold the flat under a registered deed dated 18^th July, 2008 for a sale consideration of Rs. 23 crores. The assessee, after the sale of the flat, invested a part of the sale consideration of Rs. 2.89 crores in the purchase of a new residential unit. In his return of income filed for the A.Y. 2009-2010, he had shown the sale consideration of Rs. 11.50 crores which was his share of the sale proceeds by way of capital gain. He claimed the benefit of cost indexation and also claimed exemption of the sum of Rs. 2.89 crores while computing his capital gain tax liability in terms of section 54 of the Act.

The assessing officer (AO) rejected his claim on the ground that the assessee had not transferred the building and the land appurtenant thereto. In the opinion of the AO, since this was a pre-condition for application of section 54 of the Act, the assessee was not entitled to the benefit of exemption as per the said provision.

On appeal to the CIT(A) it was held that the fact that the residential building in which the flat was situated was constructed on a leased land, would not change the nature of transaction. He accepted the assessee’s contention that as per the provisions of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, the assessee would be the owner of the flat in law. The Commissioner (A) also held that for applicability of section 54, the assessee had to sell a capital asset in the nature of building or land appurtenant thereto. The word ‘or’ cannot be read as ‘and’ in the context of the said provision.

The Revenue carried the matter in appeal before the Tribunal. The Tribunal dismissed the Revenue’s appeal, upon which the appeal was filed before the Hon’ble High Court.

The Revenue submitted that for availing benefit of section 54 of the Act, the assessee has to sell a capital asset in the nature of building and land appurtenant thereto. In the present case, the complex was situated on land which itself was granted on lease. The co-operative housing society was not the owner of the land. Therefore, what the assessee had transferred under a registered sale deed was a mere building and not the land appurtenant thereto. In support of his contention that in the context of section 54 of the Act the word ‘or’ should be read as ‘and’, the Revenue relied on the commentaries of certain renowned authorities on income-tax law.

The Court held that the facts noted above were not in dispute. The father of the assessee was allotted a flat in a residential complex in a co-operative housing society. The complex was constructed on land which was not owned by the society but was being enjoyed on long-term lease. According to the Revenue, the sale of a flat in such a society and investing any sale proceeds for acquisition of a new residential unit would not satisfy the requirements of section 54 of the Act. Firstly, there is no such prescription u/s. 54(1) of the Act. Secondly, such a rigid interpretation would disallow every claim in case of transfer of a residential unit in a co-operative housing society.

The very concept of such a society is that the society is the owner of the land and continues to be so irrespective of the coming and going of members. A member of such a society has a possessory right over the plot of land which is allotted to him. In case of a constructed building of a co-operative housing society, the member owns the constructed property and along with other members enjoys the possessory rights over the land on which the building is situated. In either case, a member of the society, even when he sells his house, never transfers the title in land to the purchaser. The present case is no different. Merely because the housing complex in the present case is situated on a piece of land which is occupied by the co-operative housing society under a long-term lease, would make no difference. In the result, the Department appeal was dismissed.