The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) rejected a claim for exemption under Section 54F of the Income Tax Act, as the exemption from sale of capital assets were claimed in the guise of reinvestment in a non-residential property.
The case involved the sale of agricultural land with a small building by the assessee (taxpayer). The assessee sought exemption on capital gains from the sale by claiming reinvestment in a new residential property.
The Assessing Officer determined the profits as receipts from adventure in the nature of trade and refused to treat the receipts as capital gains. The reason for treating the transaction as adventure in nature of trade was that the assessee has spent Rs.20,00,000/- on the land measuring 16350 sft. which is more than Rs.100/- per sq. ft. in the year 2008 and that is nothing but adventure in nature of trade. The Assessing Officer had further held that a single transaction of purchase and sale may be outside the assessee’s line of business and it can constitute an “adventure in the nature of trade”.
Section 54F of the Income Tax Act offers tax relief on long-term capital gains from selling non-residential assets if the proceeds are reinvested in a new residential property within a specified timeframe.
The assessee sold land (Taj Land) for Rs. 3.23 crore and claimed to have reinvested Rs. 1.84 crore in a new residential property. The new property was jointly purchased with two others for Rs. 5.41 crore.
However, the registry only mentioned a 500 sq ft “covered area” and not a “residential house.” An inspection revealed a concrete block manufacturing unit operating on the land.
The assessee argued the land was for residential use, citing a domestic electricity connection and a Town and Country Planning certificate classifying the area as residential.
The ITAT ruled against the exemption as the “covered area” couldn’t be definitively classified as a residential house based on available documents. The small size of the building (500 sq ft) on a large plot (45,000 sq ft) suggested the primary investment was in land, not a residence. The presence of a manufacturing unit on the property further conflicted with residential use.
It was thus observed by the tribunal bench of Judicial Member Kul Bharat and Accountant Member Dr. B. R. R. Kumar that, “based on the evidences collected, collated, examined, verified and investigated by the revenue authorities, the covered area which is shed of 500 mtr. on the agricultural land cannot be considered as a residential house.”
Hence, keeping in view, the entire facts and peculiarities of the instant case and judicial pronouncements, we hold that the claim of the assessee for exemption under Section 54F has been rightly denied by the Assessing Officer.
The assessee’s investment was not considered a qualifying purchase under Section 54F of the Income Tax Act due to the lack of evidence for a residential property.
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