The Bombay High Court has held that in order to avail the benefit of capital gain exemption under Section 54 of the Income Tax Act transfer of land is not necessary along with the transfer of residential property.
The assessee, a co-owner of a flat situated at Napean Sea Road, Mumbai received the same under a Will made by his father, who was also a member of the Cooperative Housing Society. After his death, the Assessee received half share, other half going to his mother. These co-owners sold the flat under a registered deed for a sale consideration of Rs.23 Crores. After such sale, the assessee had invested a part of the sale consideration of Rs.2.89 Crores in purchase of a new residential unit. While filing his return, the assessee had shown the sale consideration of Rs.11.50 Crores 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. The AO also rejected his claim on the ground that the Assessee had not transferred the building and the land appurtenant thereto.
The first appellate authority held in favour of the assessee by holding that the residential building in which the flat was situated was constructed on a leased land, would not change the nature of transaction. It was also observed that the assessee can be deemed as the owner of the same as per the Maharashtra Ownership Flats Act.
On further appeal, the Tribunal also accepted the above view.
Considering the departmental appeal, Justices Akil Kureshi and Sarang V Kotwal observed that in terms of this provision, therefore, where in case of an Assessee who is an individual or Hindu Undivided Family, the capital gain arises from transfer of a long term capital asset being buildings or lands appurtenant thereto and being a residential house, the Assessee could claim exemption under the said provision by either constructing or acquiring a residential unit within prescribed time.
“In the context of our case, what is important is that there should be a transfer of capital asset being a building or land appurtenant thereto and being a residential house. The requirements of this Section would be satisfied if these conditions are met with. The Revenue strangely argued that the transferrer of a capital asset of a residential unit, in order to claim benefit of Section 54, must also transfer the land appurtenant thereto. Firstly, there is no such prescription under Section 54(1) of the Act. Secondly, such a rigid interpretation would disallow every claim in case of transfer of a residential unit in a Cooperative Housing Society,” the bench said.
While concluding, the bench added that “the very concept of Co-operative Housing Society is that the society is the owner of the land and continues to be so irrespective of the incomings and outgoings of its members. A member of Co-operative Housing Societies has 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 such building is situated. In either case, a member of the Co-operative Housing Society even when he sells his house, never transfers the title in land to the purchaser”.
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