2013 (7) TMI 110 - AT - Income Tax

Entitlement to Exemption u/s 54F - AO rejected the claim as the assessee had not acquired substantial domain on payment of consideration for the apartment - CIT(A) allowed the claim - Held that - A bare perusal of Section 54F(1) (supra) shows that the requirement of the Section is, as relevant for the present case, purchase of a residential house in accordance with the said Section. Ownership and possession thereof has nowhere been delineated in the Section. Now, ordinarily, purchase would take in itself ownership as well as possession. However, the obtaining situation has been amply dealt with by the Hon ble Supreme Court in Aravinda Reddy (1979 (10) TMI 1 - SUPREME Court), wherein, it has been held that the word purchase in Section 54F(1) of the Act must be given its common meaning as buying for a price or payment; and that in the Section there is no stress on cash and carry. In the present case, once the assessee had admittedly paid the entire consideration for the purchase of the residential premises even before the capital gain accrued to him, the requirements of Section 54F(1) are amply met. For the deduction under the Section, nothing further is required. CIT (A) correctly held that Section 54F is a beneficial provision designed to promote re-investment of sale proceeds of long-term capital assets in residential house properties; that its purpose is to give impetus to the house building activity in order to meet the acute shortage of housing and for this purpose, providing an incentive to tax payers by exempting from tax long-term capital gains arising from the transfer of other assets where the net consideration is invested by the tax payer in residential house. In favour of assessee.

Summary

Issues Involved:
1. Whether the assessee had obtained substantial domain over the flat.
2. Eligibility of the assessee for exemption under Section 54F of the Income Tax Act on the entire capital gain.
3. Interpretation of the term "purchase" under Section 54F(1) of the Income Tax Act.
4. Applicability of Section 2(47)(iiia) of the Income Tax Act regarding ownership and possession of the property.

Detailed Analysis:

1. Substantial Domain Over the Flat:
The department contended that the assessee had not acquired substantial domain over the flat despite paying the entire consideration. The Assessing Officer argued that ownership or transfer of ownership should be determined by acquiring possession or part possession of the property, which had not occurred in this case. The CIT (A), however, held that the assessee had obtained substantial domain over the flat as the entire purchase price had been paid.

2. Eligibility for Exemption Under Section 54F:
The Assessing Officer rejected the assessee's claim for exemption under Section 54F, stating that the assessee did not have legal ownership or possession of the flat. The CIT (A) ruled in favor of the assessee, stating that Section 54F is a beneficial provision designed to promote reinvestment in residential properties and that the assessee had met the requirements by paying the full purchase price. The Tribunal upheld this view, emphasizing that the purpose of Section 54F is to incentivize taxpayers to invest in residential properties.

3. Interpretation of "Purchase" Under Section 54F(1):
The Tribunal referred to the Supreme Court's ruling in 'CIT vs. Aravinda Reddy', which held that the term "purchase" should be given its common meaning of buying for a price or payment. The Tribunal noted that Section 54F(1) does not stress ownership or possession but merely the act of purchase. Since the assessee had paid the entire consideration before the capital gain accrued, the requirements of Section 54F(1) were deemed to be met.

4. Applicability of Section 2(47)(iiia):
The Assessing Officer's reference to Section 2(47)(iiia) and various clauses of the agreement regarding legal ownership and possession was found to be incorrect. The Tribunal clarified that the provisions of Section 54F(1) do not require legal ownership or possession for claiming the exemption. The Tribunal supported the CIT (A)'s view that the Assessing Officer erred in applying these provisions and that the assessee was entitled to the exemption under Section 54F.

Conclusion:
The Tribunal confirmed the order of the CIT (A), holding that the assessee had obtained substantial domain over the flat by paying the full purchase price and was entitled to exemption under Section 54F of the Income Tax Act. The appeal filed by the Department was dismissed.