2010 (5) TMI 852 - AT - Income Tax

Summary

Issues involved:
The judgment involves the consideration of whether the disallowance of deduction under section 54F of the Income Tax Act was justified in the case of capital gains arising from the transfer of residential house property. Additionally, it addresses the entitlement to indexation in respect of payments made for the acquisition of flats.

Issue 1: Disallowance of Deduction under Section 54F
The assessee, engaged in technical services, claimed deduction under section 54F for capital gains from the sale of two flats. The Assessing Officer denied indexation and exemption under section 54F, stating that the tentative allotment letter did not constitute an asset. The CIT(A) allowed indexation but upheld the denial of section 54F benefit, as the assessee owned multiple residential houses at the time of transfer. The ITAT concurred, ruling that the tentative allotment letter did not transfer a long-term capital asset, and the subsequent sale did not meet section 54F conditions. The appeal was dismissed.

Issue 2: Entitlement to Indexation for Payment Made
The revenue contested the allowance of indexation for payments made by the assessee towards acquiring flats. The CIT(A) permitted indexation, considering the rights acquired by the assessee. The ITAT disagreed, stating that indexation is applicable when the assessee becomes the owner of the property, which did not occur at the time of payment against the tentative allotment. The ITAT set aside the CIT(A) order, emphasizing that indexation is based on the year the asset is acquired, which, in this case, was post the agreement dated 22-11-2001.

In conclusion, the ITAT upheld the denial of section 54F benefit due to ownership of multiple residential houses and disallowed indexation for payments made before the acquisition of the asset.