2012 (7) TMI 563 - HC - Income Tax

Denial of claim of exemption u/s 54F - as possession of the property under consideration by the appellant to the developer for development of the property under the development agreement and therefore transfer for the purpose of assessment of capital gains took place - Held that - as joint owners of the property, the assessee and her husband had shown 50% share with reference to the clinic and the residential portion in their respective returns. Thus, it is clear that as on the date of the transfer, the assessee did not own a residential house in her name only, the income from which was chargeable under the head income from house property , to bring into operation, the proviso to Section 54F - A reading of Section 54F clearly points out that the holding of the residential house as on the date of transfer has relevance to the status of the assessee as an individual or HUF. On the admitted fact that the assessee herein, as an individual, does not own any property in the status of an individual as on the date of transfer, we have no hesitation in accepting the case of the assessee, thereby allowing the appeal - in favour of assessee.

Issues Involved:
1. Applicability of Section 2(47)(v) of the Income Tax Act, 1961, regarding the transfer of property for capital gains assessment.
2. Eligibility for exemption under Section 54F of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Applicability of Section 2(47)(v) of the Income Tax Act, 1961
The first issue revolves around whether the handing over of possession of the property by the assessee to the developer in September 1999 under a development agreement constitutes a "transfer" under Section 2(47)(v) of the Income Tax Act, 1961, thereby making the capital gains assessable for the assessment year 2000-01. The court noted that the assessee entered into a joint development agreement on 27th January 1999 with a developer, where she retained 50% of the undivided share and agreed to convey the remaining 50% to the developer. The agreement included the construction of residential apartments and the handing over of possession to the developer. The Assessing Officer and the Tribunal concluded that the transfer took place in the previous year relevant to the assessment year 2000-01, as the possession was handed over in September 1999. This interpretation was upheld, and the capital gains were assessed for the assessment year 2000-01.

Issue 2: Eligibility for Exemption under Section 54F of the Income Tax Act, 1961
The second issue pertains to whether the assessee was disqualified from claiming exemption under Section 54F of the Income Tax Act, 1961, due to owning a residential property as on the date of transfer. The assessee claimed exemption under Section 54F for the assessment year 2001-02, which was denied by the Assessing Officer on the grounds that she owned a residential house at the time of transfer. The Tribunal upheld this view, stating that the assessee owned a 50% share in a residential property, thus disqualifying her from the exemption.

However, the court examined the applicability of Section 54F, which provides that an individual or HUF can claim exemption from capital gains tax if the gains are invested in a new residential house, provided they do not own another residential house at the time of transfer. The court noted that the assessee owned only a 50% undivided share in the property along with her husband, and the property was used partly as a clinic and partly as a residence. The court agreed with the assessee's contention that joint ownership does not equate to exclusive ownership, and thus, the proviso to Section 54F, which disqualifies an individual owning a residential house from claiming exemption, does not apply in this case.

The court cited precedents from the Delhi High Court and Bombay High Court, which supported the view that joint ownership does not disqualify an individual from claiming exemption under Section 54F. The court concluded that the assessee was eligible for the exemption, as she did not own the residential property exclusively.

Conclusion
The court allowed the appeal, holding that:
- The transfer of property for capital gains assessment took place in the assessment year 2000-01 under Section 2(47)(v) of the Income Tax Act, 1961.
- The assessee was eligible for exemption under Section 54F of the Income Tax Act, 1961, as she did not exclusively own a residential property at the time of transfer.

The Tax Case Appeal was allowed with no costs.

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