2016 (7) TMI 458 - AT - Income Tax

Eligibility for claim of deduction u/s 54F - whether the consideration received by the assessee on sale of her rights to get the conveyance of the flat in her favour is to be treated as capital gain eligible for claim of deduction - Held that - While making the payment to the builder, the intention of the assessee was not to earn any quick profits but the purpose was of investment. The assessee not only paid the earnest money in the year 2004 but subsequently paid installments to the builder at certain stages of the completion of the construction. However, before the possession of the flat being offered to the assessee, the assessee decided to transfer his rights to a third party at some profit. The said profit was treated by the assessee as capital gains. From the facts narrated above it clearly reveals that the payment made by the assessee was not an advance or security but it was towards the consideration of the flat in question which was under construction and payment of the installments were made at different stages of the completion of the construction. There accrued a right to get the possession/conveyance of the said flat in favour of the assessee from the said builder. A tripartite agreement was executed vide which the assessee, with the consent of the builder, had agreed to sale his rights in favour of the third party. So far as the observation of the AO that the assessee had to exercise his option within 30 months, the Ld. A.R. of the assessee has brought our attention to the relevant part of the assessment order wherein the assessee had explained to the AO that the time period for exercise of option was extended by the builder to 40 months vide its letter dated 01.07.07 Even otherwise, the assessee had booked the flat, paid earnest money, paid installments at certain stages of the completion of the building as per the schedule of the allotment letter, hence under such circumstances a definite right had accrued to the assessee to get the possession and conveyance of the flat in her favour. Hon ble Bombay High Court in the case of CIT vs. Vijay Flexible Containers (1989 (9) TMI 16 - BOMBAY High Court ) wherein the Hon ble Bombay High Court has held that the right to obtain conveyance of immovable property is a capital asset and giving up of the right to obtain conveyance of immovable property amounts to transfer of a capital asset. - Decided in favour of assessee.

Summary

Issues:
1. Whether the consideration received by the assessee on the sale of her rights to get the conveyance of the flat is to be treated as capital gain eligible for deduction under section 54F of the Act.

Analysis:
The appellate tribunal heard the appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of the consideration received by the assessee on the sale of her rights to get the conveyance of the flat. The Revenue contended that the amount received should be considered as income under section 56 of the Act, as the assessee had not acquired ownership of the flat and the property was still under construction. The Assessing Officer held that no capital asset was sold, and thus, no capital gains were earned, denying the benefit under section 54F. The CIT(A), however, allowed the claim, stating that the consideration was received based on a registered agreement for sale, recognizing the assessee's right in the flat. The CIT(A) emphasized that the right existed for over three years, making it a capital asset eligible for exemption under section 54F.

The tribunal noted that the assessee received the consideration for the sale of her rights in a specific flat, against which she had made payments over several years during the construction stages. The intention behind the payments was deemed as an investment rather than for quick profits. The tribunal highlighted that the assessee had a right to obtain possession/conveyance of the flat, as evidenced by the tripartite agreement executed with the builder. The tribunal also considered the extension of the option period by the builder and cited relevant decisions by the Bombay High Court, establishing that the right to obtain conveyance of immovable property is a capital asset. Based on the factual and legal aspects presented, the tribunal found no fault in the CIT(A)'s decision to allow the appeal of the assessee.

In conclusion, the tribunal dismissed the appeal of the Revenue, affirming the decision of the CIT(A) to treat the rights of the assessee in the flat as a capital asset eligible for deduction under section 54F of the Act.