2017 (9) TMI 1701 - HC - Income Tax

Addition on account of long term capital gain - disallowing the claim u/s 54F as the assessee was having more than one residential house as on date of transfer of the original asset - as contended that the two other properties were never in possession. The title of the property transferred only on execution of an agreement - Held that - In our considered opinion merely an agreement or booking of flat is not the property ownership it is only a claim over the property. The view taken by the tribunal in deleting the addition made on account of long term capital gain by disallowing the claim u/s 54F is just and proper - Decided in favour of the assessee and against the department.

Summary

Issues Involved:
1. Whether the ITAT was justified in deleting the addition of Rs. 1,27,14,208/- made on account of long-term capital gain by disallowing the claim under Section 54F, given that the assessee was alleged to have more than one residential house on the date of transfer of the original asset.

Issue-wise Detailed Analysis:

1. Applicability of Section 54F:
The court examined whether Section 54F of the Income Tax Act applied, given that the original asset transferred was not a residential house. The provision allows exemption from long-term capital gains if the net consideration from the transfer is invested in purchasing or constructing a residential house. The court noted that the appellant could claim this exemption if the conditions of Section 54F were met.

2. Ownership of Multiple Residential Houses:
The court considered the proviso to Section 54F(1), which disallows the exemption if the assessee owns more than one residential house on the date of transfer of the original asset. The appellant's balance sheet as of 31.03.2008 showed ownership of multiple flats, including those in Mahaveer Nagar, Jaipur, Heritage City, Gurgaon, ATS Paradiso, Greater Noida, and ATS Prelude-Golf Meadow, Chandigarh.

3. Date of Transfer of Original Asset:
The date of transfer was a point of contention. The appellant initially considered the date as 03.10.2008, the date of the last installment paid by RICCO. However, the court determined that the actual date of transfer should be 05.06.2008, the date on which the land was acquired by RICCO.

4. Nature of Ownership of Noida and Chandigarh Flats:
The appellant argued that the Noida and Chandigarh flats were merely booked and not possessed, thus not qualifying as owned residential houses. The court examined whether booking rights equated to ownership. The AO and CIT(A) treated these flats as owned by the appellant, citing substantial investments and their appearance on the appellant’s balance sheet.

5. Tribunal’s Interpretation:
The tribunal concluded that the term "owns" in Section 54F refers to legal ownership, which includes the right to receive income from the property. The tribunal found that the appellant did not legally own the Noida and Chandigarh flats on the date of transfer of the original asset, as the possession and registration of these flats were not completed.

6. Beneficial Provision of Section 54F:
The tribunal emphasized that Section 54F is a beneficial provision aimed at promoting the construction of residential houses. The intention is to encourage investment in residential properties, and the completion of construction or occupation is not a requirement for availing the exemption.

7. Relevant Case Laws:
The court referred to several case laws supporting the tribunal’s view, including:
- CIT vs. Kuldeep Singh: Highlighted the broader interpretation of the term "purchase."
- CIT vs. R.L. Sood: Stated that substantial payment towards a new property within the specified period fulfills the requirements of Section 54.
- CIT vs. Kamal Wahal: Emphasized liberal interpretation of beneficial provisions.
- CIT vs. Girish L. Ragha: Supported the view that substantial investment in a new property qualifies for exemption even if possession is delayed.

Conclusion:
The court upheld the tribunal’s decision, concluding that merely booking a flat does not equate to ownership. The tribunal's view that the appellant did not own more than one residential house on the date of transfer of the original asset was deemed correct. Consequently, the exemption under Section 54F was allowed, and the appeal was dismissed. The issue was resolved in favor of the assessee and against the department.