2016 (8) TMI 1008 - AT - Income Tax

Computation of capital gains on exemption claimed by the assessee u/s 54/54F - Held that - When the assessee entered into an agreement with M/s Doshi Housing Ltd allowing them to retain 40% of the undivided share in the property for a consideration of 60% of the super built-up area, this Tribunal is of the considered opinion that there was a transfer of property to the extent of 40% of the undivided share in the land. The assessee has executed a power of attorney enabling the developer to sell 40% of the undivided share in the land to the proposed purchasers. Therefore, this Tribunal is of the considered opinion that there was a transfer of property within the meaning of sec. 2(47)(vi) of the Act on 20.1.2006. Hence, the capital gain arising out of the transfer has to be assessed during the year under consideration. The schedule to the development agreement clearly shows that what was transferred by the assessee is a residential house and not the vacant land, therefore, the contention of the ld. DR is misconstrued. When the assessee has transferred the residential house alongwith the land, this Tribunal is of the considered opinion that the assessee is eligible for exemption u/s 54 of the Act. Coming to the claim of the assessee u/s 54F of the Act, even assuming that what was transferred is only a vacant land, the assessee is eligible for exemption u/s 54F of the Act. The assessee s claim for exemption u/s 54F of the Act was rejected on the ground that the assessee was having two flats and one of the flat was transferred within a period of three years. This Tribunal is of the considered opinion that even though two flats were allotted, this has to be construed as one single unit therefore, the assessee is eligible for exemption u/s 54F of the Act. The so called transfer of one of the flats is not by sale. The property was settled in favour of assessee s son and daughter. This Tribunal is of the considered opinion that a settlement made by the assessee in favour of her son and daughter is only a family arrangement in the family and it cannot be construed as transfer of property. There may be various reasons for settling the property in favour of the assessee s son and daughter. The fact remains that the property was settled by way of family arrangement for convenient enjoyment and the property remains with assessee s son and daughter. Therefore, the exemption u/s 54F/54 cannot be denied. In view of the above discussion, while confirming the transfer of property during the year under consideration, we hold that the assessee is eligible for exemption u/s 54/54F of the Act. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to allow the claim of exemption u/s 54/54F of the Act to the assessee. - Decided partly in favour of assessee.

Summary

Issues:
Computation of capital gains on exemption claimed under sections 54/54F of the Income-tax Act.

Analysis:
The appeal pertains to the assessment year 2006-07 and revolves around the computation of capital gains on exemption claimed by the assessee under sections 54/54F of the Income-tax Act. The primary contention raised by the representative for the assessee was that there was no transfer of property on the date specified, and therefore, any capital gain should be assessed in the subsequent assessment year. The representative argued that the property in question was a residential house, making the assessee eligible for exemption under section 54 of the Act. Additionally, the representative disputed the disallowance of the claim under section 54F, asserting that the transfer of assets to the assessee's son and daughter was not a sale but a family arrangement, thus maintaining eligibility for exemption.

On the contrary, the Departmental Representative contended that the physical possession of the property was indeed transferred on the specified date as per the development agreement, justifying the assessment of capital gains in the relevant year. The Departmental Representative also argued that the property transferred was vacant land, not a residential house, challenging the assessee's eligibility for exemption under section 54 of the Act. Furthermore, the Departmental Representative highlighted the transfer of one of the flats within three years, questioning the eligibility for exemption under section 54F.

After considering the arguments from both sides and examining the available material, the Tribunal concluded that the property was indeed transferred on the specified date as per the development agreement. The Tribunal found that there was a transfer of property to the extent of 40% of the undivided share in the land, justifying the assessment of capital gains in the relevant year. Regarding the exemption claimed by the assessee, the Tribunal determined that the property transferred included a residential house, making the assessee eligible for exemption under section 54 of the Act. Additionally, the Tribunal upheld the eligibility for exemption under section 54F, considering the transfer of two flats as one single unit and recognizing the transfer to the assessee's son and daughter as a family arrangement, not a sale.

In conclusion, the Tribunal partially allowed the appeal, modifying the orders of the lower authorities, and directed the Assessing Officer to allow the claim of exemption under sections 54/54F of the Act to the assessee. The judgment was pronounced in an open court on 22nd July 2016 in Chennai.