2010 (1) TMI 703 - AT - Income Tax

Exemption u/s 54F - assessee was given undivided 10% share in the schedule property mentioned in Schedule A and the same has been described in Schedule B property. Schedule C property is a 3 bedroom apartment flat no.302 on the second floor of the apartment building known as Silver Oak - It is true that as per the sale agreement the assessee was required to pay more than Rs.34, 51, 500 - Proviso to section 54F(1) is applicable in case the assessee purchases residential house within a period of one year or constructs a residential house within a period of 3 years after the date of transfer of the original asset - Held that section 54F will be applicable in the case of the assessee in respect of apartment in Sobha Daisy however in case it is finally held that proviso will be applicable then the capital gain is to be chargeable in the previous year in which residential house is made or constructed and not in the asst. year under consideration - Decided in favor of the assessee

Issues Involved:
1. Entitlement to exemption under Section 54F of the Income Tax Act.
2. Nature of transactions with Silver Oak Builders and Developers and Shobha Developers.
3. Timing and nature of property transactions.
4. Consideration of investment up to the date of filing the return under Section 139(4).
5. Liability to interest under Section 234B.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 54F of the Income Tax Act:
The primary issue was whether the assessee was entitled to exemption under Section 54F of the Income Tax Act for the capital gains arising during the assessment year in question. The assessee had disclosed a sum under long-term capital gains received from a private trust. To claim the deduction under Section 54F(1), the assessee needed to purchase a new residential house within one year before or two years after the date of transfer or construct a new residential house within three years from the date of transfer. The CIT(A) observed that the assessee had constructed two apartments within three years, thus attracting the provisions of sub-clause (iii) to Section 54F(1), which led to the denial of the exemption.

2. Nature of Transactions with Silver Oak Builders and Developers and Shobha Developers:
The CIT(A) held that both transactions with Silver Oak Builders and Developers and Shobha Developers were cases of construction. The assessee argued that the transactions were materially different. The Silver Oak transaction involved a registered sale deed executed on 6th November 2007, beyond one year of the sale of the original asset, and the Shobha Developers transaction was for construction, evidenced by the registration of only an undivided interest in the land.

3. Timing and Nature of Property Transactions:
The CIT(A) noted that the assessee made alternative claims for two new assets for deduction purposes. The Silver Oak apartment was registered on 6th November 2007, and possession was given on 28th May 2008. The second asset, a flat in Sobha Daisy, was constructed, with the sale agreement dated 25th March 2008. The CIT(A) concluded that both apartments were constructed within three years from the date of transfer of the original asset, thus disqualifying the assessee from the exemption under Section 54F due to the construction of two flats within the stipulated period.

4. Consideration of Investment up to the Date of Filing the Return under Section 139(4):
The assessee claimed entitlement to exemption for the entire investment up to the date of filing the return under Section 139(4), referencing the jurisdictional Tribunal's decision in the case of Nipun Mehrotra. The Tribunal held that the term "section 139" includes all sub-sections, not just Section 139(1). Therefore, the assessee was entitled to the exemption as the sale consideration was utilized before the date of filing the return under Section 139(4).

5. Liability to Interest under Section 234B:
The appellant denied liability to interest under Section 234B. The Tribunal did not specifically address this issue in detail within the judgment.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee was entitled to deduction under Section 54F for the apartment in Sobha Daisy, treating it as a new asset. The purchase of the Silver Oak apartment did not attract the proviso to Section 54F since it was purchased after the date of transfer of the original asset. The Tribunal also referenced the decision in Nipun Mehrotra, affirming that the investment made up to the date of filing the return under Section 139(4) qualifies for the exemption. The appeal was pronounced in favor of the assessee on 29.1.2010.

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