Sale of Under-Construction Property is not Sale of Residential Property: Bombay High Court allows S. 54F Benefit [Read Judgment]

Granting Refunds - Bombay High Court - Taxscan

A division bench of the Bombay High Court has held that the sale of ‘under construction property’ cannot be regarded as the sale of residential unit fo0r the purpose of denying the benefit of exemption under Section 54F of the Income Tax Act, 1961.

The respondent-assessee, an individual filed income tax returns and claimed deduction under section 54F on account of sale of flat. The Assessing Officer denied the benefit by finding that the flat was in the nature of residential unit and therefore, Section 54F would not apply.

On appeal, both the Commissioner (Appeals) and Tribunal held that the property transferred by assessee could not be termed to be a residential house and the provisions of section 54F were beneficial provisions enacted for the purpose of promoting the construction/purchase of residential houses.

Justices B P Colabawala and Justice Akil Kureshi held that “Perusal of sub-section (1) of Section 54 of the Act would show that the exemption would be available to an assessee being an individual or Hindu Undivided Family where the capital gain arises from the transfer of a long-term capital asset, not being a residential house provided the remaining conditions of the said provisions are satisfied. In this context, as noted, the revenue’s objection is that the assessee had sold a flat which was in the nature of the residential unit. The Tribunal, however, found that the facts of the case are somewhat peculiar.”

Also Read: Loss incurred on Sale of Shares of Subsidiary Companies is Business Loss: ITAT

The bench noted that the assessee had booked the flat on 15.1.1981. The builder failed to complete the construction and the scheme ran into multiple legal disputes. These disputes traveled to the Bombay High Court. The Bombay High Court appointed a committee in the nature of Receiver and was asked to observe the completion of the construction. Under such circumstances, the construction was completed sometime in February 2011. In the meantime, the assessee had sold the flat in the year 2005 which she had booked. The same was still under construction. The same resulted in a long-term capital gain.

Dismissing the departmental appeal, the bench said that “It was in such peculiar facts that the Tribunal held that the assessee cannot be said to have transferred a capital asset in the nature of the residential house. We may recall that the assessee had booked the flat far back in January 1981 and till the time, she sold for the same in the year 2005, completion of Constitution was nowhere in the sight. It was only with the intervention of the High Court and the steps taken by the Committee appointed by the High Court that the construction could be completed much later in the year 2011. In the peculiar facts of this case, therefore, we do not find any error in the view of the Tribunal.”

Subscribe Taxscan Premium to view the Judgment

taxscan-loader