CAPITAL GAINS EXEMPTION IS ACCEPTABLE IF TAXPAYERS HAVE ACQUIRED SUFFICIENT DOMAIN ON THE HOUSE PROPERTY AND PAID THE FULL COST

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CAPITAL GAINS EXEMPTION IS ACCEPTABLE IF TAXPAYERS HAVE ACQUIRED SUFFICIENT DOMAIN ON THE HOUSE PROPERTY AND PAID THE FULL COST

08/01/2023

CAPITAL GAINS EXEMPTION IS ACCEPTABLE IF TAXPAYERS HAVE ACQUIRED SUFFICIENT DOMAIN ON THE HOUSE PROPERTY AND PAID THE FULL COST

BRIEF FACTS

The assessee was the owner of a 50 per cent. share in an immovable property known as Casa Da Vinci at Worli, which was being used by the assessee and her husband for residential purposes. Her husband was the owner of the other 50 per cent. share.

Under an agreement of sale dated 2.10.1972, the two co-owners of the property agreed to sell it to the proposed Andromeda Co-operative Housing Society Ltd. through the chief promoter for a total price of Rs. 8 lakhs.

The share of the assessee in the said price was Rs. 4 lakhs. The Andromeda Co-operative Housing Society Limited was formed and registered on 3.11.1972, with the object, inter alia, of purchasing this property and constructing tenements on the said property for the use of its members.

The total number of members of the society was not to exceed the total number of tenements or flats available for allotment to the members. Each of the members was required to hold at least five shares of the society. The assessee was one of the signatories to the memorandum of objects of the society and its regulations and had agreed to take a flat in the said society subject to the regulations of the society.

Pursuant to the above agreement of sale, by conveyance dated 8.12.1972, the property was conveyed by the assessee and her husband to the society. The assessee has received under this conveyance a total amount of Rs. 4 lakhs on or before 31.3.1973. On 25.10.1973, an agreement was entered into between the society and the assessee under which it is, inter alia, stated that the assessee had agreed to hand over possession of the property to the society on or before 30.6.1973.

It is further recited that the plans for construction of a building on the said property are approved by the Municipal Corporation of Bombay on 21.2.1973, and a commencement certificate is issued on 3.8.1973. It is further recited that a contract for construction of the building is already given to the firm of L.T. Construction by a resolution in a special general meeting of the members of the society held on 20.11.1972.

It is further recited that the assessee has agreed to become a member of the society and to take a flat in the proposed building. Under this agreement of 28.10.1973, the society agreed to allot to the assessee flat No. 7-A and B admeasuring 2,590 sq. ft. on the seventh floor of the building being constructed and the assessee agreed to pay a sum of Rs. 2,59,360 to the society. Of this amount, a sum of Rs. 30,000 was to be paid towards the purchase of shares of the society. The balance of Rs. 2,29,360 was to be treated as a loan to the society.

The construction, therefore, was carried out by the society through the construction firm for the benefit of its members. That is the reason why the balance amount was to be treated as a loan to the society. One of the conditions of the agreement was that the assessee had to use the flat for self or members of her family for the purpose of her residence and for no other purpose.

It was also stipulated that the society will try to complete the construction of the building within a reasonable time but in any case the assessee was not entitled to cancel the agreement or claim any damages.

For the reasons which we have set out above, in our view, the present case falls within the provisions of section 54 in view of the fact that the assessee had acquired substantial domain over the flat in question under the agreement with the society coupled with the payment of almost the entire cost of construction within a period of two years. favour of the assessee.

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