Assessee eligible for Benefit of Sec 54F since Gain on entering into the Development Agreement is LTCG: ITAT [Read Order]

The Hyderabad bench of Income Tax Appellate Tribunal (ITAT) recently ruled that Assessee eligible for getting the benefit of section 54F of the Income Tax Act 1961 since the gain on entering into the development agreement is Long Term Capital Gain ( LTCG ).

The assessee in the case Mr Doddapaneni Atchaiah being an individual and a pensioner did not file his return of income in the assessment year. During the year the Assessing Officer (AO) issued notice under section 147 of the Act on the basis of the information that the Assessee was entered into a development agreement with M/s Diamond Infra for the development and the Assessee is one of the landholders and the same was escaped from the returns of income. In response to the notice, the Assessee has admitted an income of Rs.1,69,290.

Thereafter the Assessee was asked to furnish the required evidences regarding the land transfer by issuing another notice under section 143(2) and 142(1) of the Act. After analyzing the documents the AO observed that the Assessee has entered into a Development Agreement-cum-GPA with M/s Diamond Infra for development of his land of 1001.00 sq. yards. Further, he observed that the Assessee has purchased the plot vide a registered sales deed then he was questioned about the incidence of capital gain arising out of the development.

In response, the Assessee submitted that he has purchased the land, in question, in the year 2003 vide registered sale deed and therefore the gains arising out of the development agreement is Long Term Capital Gain and accordingly, the Assessee claimed LTCG exemption under section 54F of the Act.

However, the AO held while observing the registered sales deed that the earlier sale deeds were cancelled and that no possession was given to the assessee by virtue of those sale deeds registered in 2003 and that the possession was handed over to the assessee only in 2006. Therefore the asset has been held for a Short Term only and the resultant claim is STCG, accordingly, he denied the claim of the Assessee while completing the Assessment.

On appeal, the CIT(A) upheld the order of the AO and confirmed the disallowance. Thereafter the Assessee approached the Tribunal on further appeal against the order of the authority.

Before the bench counsel for the Assessee Advocates C.S. Subramanyam and V. Siva Kumar submitted that the unapproved plots were sold to the assessee and the assessee was put in possession of the land as is mentioned in the registered sale deed and the assessee had paid the entire sale consideration for the plot to the vendor in the year 2003 itself and has not paid any further sale consideration in the year 2006. This indicates that the Assessee has purchased the land on 2003 and the said plot is a long-term asset, therefore, the gains from the development agreement being, long-term capital gain, is also eligible for exemption under 54F of the Act.

After considering the rival submissions of both the parties the Tribunal comprising of Judicial Member P. Madhavi Devi and Accountant Member S.Rifaur Rahman observed that “Since the cancellation and the re-registration of the property is not for any reason attributable to the assessee and the facts and circumstances are beyond the control of the assessee, it cannot be imputed that the assessee has not purchased the property in the year 2003. The division bench further observed that the cancellation deed is a unilateral document without the assessee being made a party to it and is also in contradiction to the registered sale deed wherein it has been mentioned that the possession has already been handed over to the assessee. Therefore, the recitals in the unilateral cancellation deed alone cannot be taken as evidence for holding that the possession of the property has been delivered to the assessee only in the year 2006”.

While concluding the issue the Tribunal bench held that “the property is a long-term capital asset and the gain arising from transfer thereof is LTCG. Since the gain on entering into the development agreement is LTCG, the assessee is also eligible for the claim of exemption under section 54F of the Act”. The findings of the lower authorities are not correct in the eye of law and in fact, the Assessee in the present case is eligible to get the benefit of section 54F of the Act since gain on entering to the development agreement as long-term capital gain. The bench said while allowing the appeal filed by the Assessee.