2015 (9) TMI 374 - AT - Income Tax

Entitlement to exemption under section 54F - Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house - assessee found favour with CIT (A) on the basis that the Flat B itself was the new asset, so that it could not be said that the assessee had more than one residential house, excluding the new asset, as on the date of the transfer of the original asset, i.e., July 21, 2008. Any investment made during the period July 21, 2007 and July 21, 2010 would thus qualify for exemption under section 54F - Held that - The restrictions, as of a maximum of two residential houses ; retention of one qua which deduction is availed of for a period of three years (lest the same becomes a trade), etc., stand clearly spelt out in the section itself (section 54F). Once the purchase of a residential house has crystallised, as ostensibly on July 27, 2007 in the present case, any capital gain arising on a long-term capital asset (non-residential) could be appropriated towards its cost as long as the conditions of the section are met. A beneficial provision, as section 54F, has even otherwise to be construed liberally. In the case of allotment of flats through self-financing schemes, as by the Delhi Development Authority, the same is considered as an acquisition by way of construction, entitling the assessee to complete the test of dominion over an increased period of time, i.e., three years, as provided by the statute for the same (construction) after the date of transfer. In the facts of the present case, the assessee paid ₹ 51 lakhs in July, 2007, receiving the letter of allotment. Whether the same would amount to a purchase of the relevant asset would be the next and the relevant question to be asked. Even though the same may not by itself be considered as constituting a purchase in terms of test laid down by the hon ble court in the case cited supra, the subsequent payments would definitely lead to one, so that the payments made in July, 2007 can, in retrospective, only be considered as towards purchase of flat B, the new asset. But for the payments in July, 2007, it may be appreciated, the payment/s during the relevant previous year (Rs. 40 lakhs) would not result in the payment of the entire sum during the current year, even as we observe substantial payment to have been made, meeting the test of substantial control, by December, 2008, whereat therefore the purchase, as explained by the hon ble court, can be said to have taken place or matured. A reasonable construction of the provision, thus, would only be of the purchase, as indeed construction, being a manner of acquisition, which is to be completed within the time as provided under the provision, i.e., one year before or two years subsequent to the date of transfer of the relevant capital asset. Further, determination of the purchase date of flat B in December, 2008 would, however, result in no adverse impact on the assessee s case either for the assessment year 2007-08 or for the current year. - Decided in favour of assessee.

Issues:
- Appeal by Revenue against CIT(A)'s order allowing assessee's appeal contesting assessment under section 143(3) for A.Y. 2009-10 regarding exemption under section 54F.
- Interpretation of provisions of section 54F in relation to the purchase of a residential house for exemption of capital gains.
- Whether the assessee's investment in a new residential flat qualifies for exemption under section 54F.
- Determining the date of purchase of the new asset for eligibility under section 54F.

Analysis:

1. Interpretation of Section 54F:
The case involves an appeal by the Revenue against the CIT(A)'s order allowing the assessee's appeal regarding exemption under section 54F of the Income-tax Act, 1961. The assessee claimed exemption for long-term capital gains on the sale of an industrial gala by investing in a residential flat. The dispute centered around whether the assessee's investment in a new residential flat qualifies for exemption under section 54F. The Revenue contended that the assessee already owned two residential flats, disqualifying them from claiming the exemption.

2. Ownership of Residential Houses:
The Revenue argued that the assessee had two residential flats, Flat A and Flat B, on the date of the transfer of the original asset. However, the CIT(A) held that Flat B was the new asset for which exemption was claimed, and hence, the assessee had only one residential house, Flat A, on the relevant date. The Tribunal agreed with the CIT(A) that the new asset should be excluded when determining the number of residential houses owned by the assessee, allowing the exemption under section 54F.

3. Date of Purchase of New Asset:
A critical aspect of the case was determining the date of purchase of the new asset, Flat B, for eligibility under section 54F. The Tribunal analyzed the concept of "purchase" in the context of the provision. The Tribunal considered the payments made by the assessee in July 2007 and subsequent payments towards the new asset. It concluded that the purchase of the new asset was completed by December 2008, meeting the conditions of section 54F. The Tribunal emphasized a liberal interpretation of the provision to support the assessee's case.

4. Decision and Conclusion:
The Tribunal found no infirmity in the assessee's case and upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal's decision was based on the exclusion of the new asset when determining ownership of residential houses and the completion of the purchase of the new asset within the stipulated time frame under section 54F. The judgment highlighted the importance of interpreting tax provisions in a manner that aligns with the legislative intent and supports the taxpayer's entitlement to exemptions.

This detailed analysis of the judgment provides insights into the interpretation of tax provisions, the application of exemption criteria, and the significance of determining key dates for eligibility under the law.

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