Shyamlal Tandon v ITO [IT APPEAL NO.1774 (HYD.) OF 2012 dated 21.0.10214] – Hyderabad ITAT

Background:

The assessee, an individual, did not file his return of income for the AY 2003-04. From the information received from DDIT(Inv), it came to light that the assessee has earned capital gains, which were not disclosed, and consequently, within the meaning of S.147 of the Act, the AO, held the view that there was escapement of income chargeable to tax. Accordingly a notice under section 148 of the Act was issued. In response thereto, assessee filed return declaring ‘nil’ income.

Assessment Proceedings

• During the course of assessment proceedings, it was submitted that the assessee, alongwith his father purchased a piece of land on 17.3.1978 for Rs.34,320. The assessee and his son had demolished the house standing on the above plot and gave the property for development. 
• As per clause (4) of the development agreement, both the father and son were entitled to share the built up area on 50:50 basis in exchange of transfer of the land. However, neither the father nor the son have has declared any long term capital gains on transfer of the land in exchange for 50% of the built up area either in the year in which the development agreement was entered into, relevant to assessment year 2001-02 or in the relevant assessment year in which transfer of 50% of the land and building took place. 
• According to the AO, the long term capital gain worked out to Rs.55,75,661 of which the assessee’s share came to Rs.27,87,831, which was assessable to tax in the assessment year 2001-02.  

CIT(A) Proceedings

• On appeal before the CIT(A), the assessee raised various contentions, besides filing written submissions, to the effect that the Assessing Officer should have given due cognizance to the cost of acquisition of the land; cost of construction; cost of improvement and exemption under S.54F of the Act. 
• CIT(A) upheld the Assessing Officer’s action on the ground that what was handed over by the assessee to the developer in terms of the development agreement was mere vacant land and nothing else; 
• Further, CIT(A) observed that though in the approval plan filed by the appellant, the property is shown as a residential house, in reality the same is actually a commercial property which houses the famous hotel by the name ‘Ohris’, Hyderabad. This is one of the most prominent commercial buildings in Hyderabad city and by no stretch of imagination, it can be termed as a residential house.  Accordingly, the appellant’s claim made during the appeal proceedings for allowance for exemption u/s. 54F of the Act, is hereby rejected.

HELD:

• Intention of the parties when the development agreement was entered into was to construct a residential property. 
• Municipal permission has also been obtained only for construction of a residential complex. 
• Ultimately, the assessee has received possession of such residential property. It may be true that the said property was put to use subsequently for commercial use. 
• Merely because of change in the use of such property for non-residential purposes, it cannot be said that what was acquired by the assessee was not a residential property, but a commercial one. Subsequent change in the user of the property does not disentitle the assessee to relief under S.54F of the Act, as held by Hyderabad Bench B of this Tribunal in the case of Shri M.V. Subramanyeswara Reddy (HUF)  ITA No.1014/Hyd/2009  dated 27.12.2011