2010 (11) TMI 510 - AT - Income Tax

Exemption u/s. 54EC - capital gain on transfer - the Assessing Officer has not considered the claim of the assessee for deduction either u/s.54 or u/s.54EC of the Act as he was of the opinion that the receipt on sale of TDR was chargeable to tax under the head Income from Other sources - It was incumbent on the part of the Assessing Officer to have examined this claim notwithstanding his stand that the receipt on sale of TDR has to be assessed under the head income from Other Sources - The AO ought to have applied his mind and rejected the claim of the assessee for exemption u/s.54 or 54EC of the Act, if according to him conditions for allow exemption under the said section is not satisfied - The CIT(A) found that the correct head under which the income from sale of TDR has to be assessed is Capital Gain he also found that the claim for deduction u/s.54 and 54EC as made to the assessee was correct - It was for the first time by this Miscellaneous Application that the Revenue has sought to raise a plea that the conditions for allowing deduction u/s.54 were not satisfied - such a stand cannot be allowed to be raised for the first time by way of a Miscellaneous application - the present Miscellaneous Application is misconceived and the same is dismissed.

Summary

Issues:
Assessment of capital gain on the transfer of development rights, eligibility for exemption under sections 54 and 54EC of the Income Tax Act, correct head of income for assessing receipts from the sale of development rights, applicability of deduction under section 54, and the nature of the built-up area received by the owners from the developer.

Analysis:
The case involved a dispute over the assessment of capital gains arising from the transfer of development rights by an individual and her husband to a developer for constructing a new building on their property. The Assessing Officer contended that no transfer of right, title, or interest over the land occurred, treating the receipts as income from other sources rather than capital gains. The CIT(A) and the Tribunal, however, ruled in favor of the assessee, considering the transaction as a transfer of a capital asset and granting exemption under sections 54 and 54EC of the Act.

The Revenue challenged the Tribunal's decision through a Miscellaneous Application, arguing that the built-up area received by the owners from the developer did not qualify as a residential house for claiming exemption under section 54. The Revenue contended that the area consisted of multiple floors and units, raising doubts about its classification as a residential house. The Revenue sought a modification of the order to restrict the exemption to one unit of the assessee's choice and tax the balance amount.

The Tribunal rejected the Revenue's application, emphasizing that the Assessing Officer did not address the claim for deductions under sections 54 and 54EC, despite assessing the receipts as income from other sources. The Tribunal noted that the Revenue's new argument challenging the conditions for deduction under section 54 was raised for the first time in the Miscellaneous Application, which was not permissible. The Tribunal also considered the debatable nature of whether the built-up area constituted a residential house, concluding that the application was misconceived and dismissing it.

In summary, the Tribunal upheld the original decision, affirming that the receipts from the transfer of development rights were assessable as capital gains and that the assessee was eligible for exemptions under sections 54 and 54EC. The Tribunal rejected the Revenue's attempt to raise new arguments through the Miscellaneous Application, maintaining that the issue of the nature of the built-up area was debatable and did not constitute a mistake apparent from the record.