2014 (4) TMI 867 - AT - Income Tax

Disallowance u/s 54F - construction of residential property - subsequent change in the usage of the property for non-residential use / commercial use - Held that - It is evident from the impugned orders of the lower authorities and other material on record that intention of the parties when the development agreement was entered into was to construct a residential property. Municipal permission has also been obtained only for construction of a residential complex. Ultimately, the assessee has received possession of such residential property. It may be true that the said property was put to use subsequently for commercial use. Merely because of change in the use of such property for non-residential purposes, it cannot be said that what was acquired by the assessee was not a residential property, but a commercial one. Subsequent change in the user of the property does not disentitle the assessee to relief under S.54F of the Act. - matter remanded back to AO to consider the assessee s claim for exemption under S.54F of the Act, subject to fulfillment of other conditions - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of claim for relief under S.54F of the Act.
2. Treatment of entire sale consideration for transfer as capital gains.

Issue 1: Disallowance of claim for relief under S.54F of the Act:
The appeal was against the Commissioner of Income-tax(Appeals) Vijayawada's order for the assessment year 2003-04. The assessee raised concerns regarding the disallowance of the claim for relief under S.54F of the Act. The Assessing Officer considered there was an escapement of income chargeable to tax due to undisclosed capital gains. The case involved a property transaction where the assessee and his father purchased land, entered into a development agreement, and eventually transferred a portion of the built-up area to another party. The Assessing Officer determined long-term capital gains and assessed the same. On appeal, the CIT(A) upheld the Assessing Officer's decision, rejecting the assessee's claim for exemption under S.54F. The CIT(A) concluded that the property was a commercial property and not a residential one, based on internet searches and observations. The assessee contended that the property was acquired for residential purposes and was entitled to relief under S.54F. The Tribunal held that the intention at the time of the development agreement was to construct a residential property, and subsequent commercial use did not disentitle the assessee from claiming relief under S.54F. The Tribunal set aside the CIT(A)'s decision and directed the Assessing Officer to reconsider the claim for exemption under S.54F.

Issue 2: Treatment of entire sale consideration for transfer as capital gains:
The second issue related to the treatment of the entire sale consideration for transfer as capital gains. The Tribunal noted that neither the Assessing Officer nor the CIT(A) addressed the objection raised by the assessee regarding the treatment of the entire sale consideration as capital gains. The Tribunal directed the Assessing Officer to examine the contentions of the assessee against the treatment of the entire sale consideration as capital gains if the claim for relief under S.54F was denied. The assessee's grounds on these issues were allowed for statistical purposes. The appeal was allowed for statistical purposes, and the matter was remanded to the Assessing Officer for further consideration.

In conclusion, the judgment addressed the disallowance of the claim for relief under S.54F of the Act and the treatment of the entire sale consideration as capital gains. The Tribunal ruled in favor of the assessee regarding the relief under S.54F, emphasizing that the property was originally acquired for residential purposes. The Tribunal also directed the Assessing Officer to reevaluate the treatment of the entire sale consideration if the relief under S.54F was denied.