Capital Gain Benefit allowable in case of Part Performance of Contract: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain exemption under Section 54F of the Income Tax Act, 1961 is allowable in case of possession handed over as part performance of the Contract.

The assessee was the owner of a 1/4th share in a residential house in Gurgaon. The assessee transferred the above asset by way of registering a general power of attorney supported by a possession affidavit of even date in favor of the purchaser. The registration of the sale of the said property had not taken place.

The Assessing Officer denied benefit of section 54F of the Act to the assessee by relying on the Apex Court decision in the case of Suraj Lamp & Industries Ltd. vs. State of Haryana wherein it was held that the registration of general power of attorney cannot convey the title nor does it tantamount to a valid mode of transfer of immovable property.

The issue before the Tribunal was whether at the time of claim of exemption u/s 54F of the Act was already in possession of two residential properties i.e., a house in Gurgaon and a penthouse.

The Tribunal allowed the contentions of the assessee and held that the judgment of the Supreme Court is prospective and does not affect transactions that have already taken place.

“As this transaction was executed in the year 2003 and possession was handed over, the judgment in the case of Suraj Lamp & Industries Pvt. Ltd. (supra) will not apply as the judgment has come in the year 2012,” the Tribunal said.

Adding that the assessee is eligible for section 54F benefit, the Tribunal said that “Even otherwise, Section 2(47) of the Act, lays down that transfer would include a transaction allowing possession of an immovable property in part performance of a contract of a nature referred to in Section 53A of the transfer of Property Act. In the case on hand, part performance of a contract has taken place and possession has been handed over. Under these circumstances, the claim of the assessee that her 1/4th share in the house property in Gurgaon has been transferred has to be accepted. Hence we hold that the assessee has only one house property as on the date of sale of the plots of land giving rise to long-term capital gain. Hence this issue is decided in favor of the assessee.”