COMMISSIONER OF INCOME TAX Vs. K G RUKMINIAMMA

JUDGEMENT

(1.) This appeal is by the revenue challenging the order passed by the Appellate Tribunal as well as the Appellate Authority holding that, in the facts and circumstances of this case, the Assessee is entitled to deduction under Section 54 and the capital gains would be nil.

(2.) Assessee Smt. Rukminiyamma had a property at Basavanagudi. She entered into a joint development agreement with builder M.A. Mohan Kumar on 8-7-2002 to develop the said property. According to the agreement, the Assessee is the owner of the property bearing No. 69 (old 17 and later 46) situated at Govindappa Road, Basavanagudi, Bangalore-2, measuring 30' X 110'. The builder agreed to construct residential apartment and agreed to deliver 48 per cent of the super built area to the Assessee in the form of residential apartments. The entire cost of construction and other expenses are to be borne by the builder. Accordingly, as agreed, the builder constructed eight flats and handed over four flats to the Assessee. Out of the four flats, she gifted three flats to her sons and retained one flat for her use. The builder, out of four flats retained by him, has sold three flats for a consideration of Rs. 17,21,250.

(3.) The Assessee filed her return of income for the assessment year 2004-05 on 1-3-2005 and had declared the income from capital gains as nil The sale value of 52 per cent of the site was valued at Rs. 22,93,650 and arrived at capital gains at Rs. 13,94,736. Since the amount was invested in residential flat, the net taxable capital gains was declared as nil. The Assessee had worked out the capital gains at Rs. 2,08,912. In the note furnished, she had mentioned that, out of the four flats allotted to her, three flats were gifted to her sons and retained one flat for her use. The return was processed under Section 143(1) on 6-2-2006. The case was selected for scrutiny as per Board's instruction since the Assessee had claimed exemption under Section 54F being the capital gain invested in residential property. Notices under Sections 143(2) and 142(1) were issued. The Assessee entered appearance with her counsel. At the time of hearing, the Assessee was requested to furnish a valuation report from the registered valuer to arrive at the cost of construction of four flats. The Assessee produced a valuation report showing the cost of construction of four flats at Rs. 40,54,200. The builder had given a sum of Rs. 1,20,000 on 8-7-2002 as refundable deposit. Out of the said amount, she had repaid Rs. 50,000 to the builder and still she was due to refund Rs. 70,000.