The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that no purchase can be said to be made, if sale deed is executed in favor of the assessee to claim capital gain exemption under section 54/ 54F.
The aforesaid observation was made by the Delhi ITAT when an appeal was preferred before it, as against the order dated 29.01.2020 in Appeal No. 60/19-20/1352, for the assessment year 2013-14, passed by Commissioner of Income Tax (appeals), New Delhi, in regard to the appeal before it arising out of assessment the order dated 31/12/2018 u/s 143(3) of the Income Tax Act, 1961, passed by the ACIT, Circle 69(1), New Delhi (AO).
The facts in brief in this appeal were that the assessee had filed the return of income declaring total income of Rs. 16,94,792/- and the assessment was completed u/s 143(3) on 28.03.2016 at an income of Rs. 1,40,69,502/- after computing taxable capital gain at Rs. 1,23,01,476/-.
However, the PCIT was of the view that the assessee had made a wrong calculation of the capital gains, primarily for reason that he considered the property to be not held for 36 months, and accordingly, directed the AO to examine the issue afresh as well as withdraw the deduction claimed and granted to the assessee u/s 54F of the Income Tax Act.
Accordingly, the AO vide fresh assessment dated 31.12.2018, concluded that the gain that has arisen, was long term capital gain, thereby disallowing the same for the reason that he was not satisfied with the three properties which the assessee had claimed to have purchased out of long-term capital gain.
Thus, the AO held the same to be not covered for the ‘purchase’ u/s 54F, but the CIT(A) however, took the contrary view and gave benefit of Section 54F of the Income Tax Act to the assessee. And it is against the same that the Revenue has preferred the instant appeal before the Delhi ITAT.
With Ms. Sangeeta Yadav, the Sr. DR contending that the CIT(A) has fallen in error in considering the nature of transactions for acquiring three properties by the assessee vide agreements and power attorney to be duly purchased, it was further submitted by the DR that the property did not fall in the class of residential properties and hence that the AO has rightly disallowed the exemption.
However, on the other hand, Sh. Neelkanth Khandelwa, the AR, on behalf of the assessee, submitted that there was no error in the findings of the CIT(A), as it was based upon the correct interpretation of provisions of Section 54/ 54F that the appeal of assessee was partly allowed.
Hearing to the opposing contentions of either sides, and thereby perusing the materials available on record, the ITAT Bench observed:
“The Bench is of considered opinion that execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell. The ‘purchase’ of immovable property involves acquiring all those interests in the property. Same may be by some inchoate instruments in favour of the purchaser.”
“Non execution of a registered document of transfer of title may have civil consequences in regard to his title, qua rights between the seller and purchaser but for the purpose of benefits of Section 54/54F, the assessee shall be deemed to have ‘purchased’ the properties. As for the purpose of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee, before the end of statutory period, for claiming exemption. When the Ld. AO had not doubted the payments out of LTCG made by assessee for purchase of three properties with inchoate documents executed in favor of the assessee. Then for not having the sale deed executed in his favor, assessee cannot be said to have not ‘Purchased’ the properties as a statutory compliance. Thus, the findings of Ld. CIT(A) in this regard require no interference”, the ITAT Panel consisting of N.K.Billaiya, the Accountant Member, along with the Anubhav Sharma, the Judicial Member added.
Thus, dismissing the Revenue’s appeal, the Delhi ITAT held:
“The bench is of considered opinion that the nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa, are only indicative of the fact that property purchased is not a commercial property and is not an agricultural property. They all convey residential house property. How it is inhabited should not interest the revenue. The Ld. AR has also impressed this by citing a judgment of Jaipur bench in ACIT V. Om Prakash Gyal, where it has been held that only requirement for claiming exemption under Section 54F is construction of residential house and it does not matter that house constructed is on agricultural land. Thus Ld. CIT(A) has rightly taken into consideration all the aspects of the matter while partly allowing the appeal of assessee and no interference is called for in the same.”
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