Where assessee had entered into development agreement under which developer had constructed a building on property of assessee and, in turn, developer had right to sell some of the flats, grant of development right to that extent was to be treated as transfer.
a) The assessee entered into a development agreement with the developer under which the developer agreed to construct a building on property of assessee. The major part of the building was to be transferred to the assessee. However, the developer was entitled to sell the remaining flats.
b) The Assessing Officer (‘AO’) held that capital gain arose on account of grant of development rights by the assessee. The alternate contention of assessee was that he was entitled to sec. 54 relief in respect of three floors of building.
c) The AO party allowed assessee’s claim of exemption under section 54 in respect of one residential floor. On appeal, the CIT (A) upheld the order of the AO as regards the transfer of property, however, he partly allowed the exemption claimed by the assessee under section 54.
The Tribunal held as under:
1) The developer had the right to sell the said flats on account of the additional FSI. To that extent the rights, title and interest in the said plot of land had been transferred. Hence, it was a clear case of transfer envisaged both under the income-tax Act and Transfer of Property Act;
2) The High Court of Delhi in the case of CIT v. Gita Duggal  30 taxmann.com 230 held the fact that residential house consisted of several independent units couldn’t be permitted to act as an impediment to allow the deduction under section 54;
3) In the case of CIT v. D. Anand Basappa  180 Taxman 4 (Kar.), the High Court has held that 'a residential house' as mentioned in section 54(1), had to be understood in a sense that the building had to be of a residential nature and the word 'a' had not be understood to indicate a singular number;
4) Therefore, the assessee was entitled to exemption under section 54 as regards the investments/cost of construction claimed by the assessee in respect of all the flats. – Dy. CIT v. Jai Trikanand Rao  41 taxmann.com 453 (Mumbai - Trib.)