2018 (11) TMI 1561 - HC - Income Tax

Exemption under Section 54 - allotment of the flats was in the nature of the assessee s investments in new residential property - adoption of FMV as on 1st April, 1981 - Held that - Tribunal notices that the assessee had received sale consideration partly in cash and partly in form of new flats to be constructed and to be allotted to the assessee. The Tribunal, therefore, correctly came to the conclusion that the assessee s investment in such new flats amounts to investment for acquisition of new residential house. The Tribunal, therefore, correctly held that the Assessing Officer was not justified in disallowing the exemption under Section 54 of the Act. No question of law arises

Summary

Issues involved:
Interpretation of Section 54 for exemption claim based on market value of flats received as part of consideration in a property sale.

Analysis:
The High Court of Bombay addressed the appeal filed by the Revenue against the Income Tax Appellate Tribunal's judgment. The primary issue revolved around whether the market value of flats received by the assessee should be considered as an investment towards the purchase or construction of a new house property for the purpose of deduction computation under Section 54 of the Income Tax Act. The case pertained to the assessment year 2007-08, where the respondent-assessee, an individual, had sold a residential property and received three flats and parking spaces as part of the consideration. The assessee claimed exemption under Section 54, stating that the allotment of flats constituted investments in new residential property.

The Assessing Officer initially rejected the exemption claim, noting that the value of the flats was not included in the total sale consideration received. However, the assessee later agreed to include the price of the flats as part of the sale consideration. The matter escalated to the Tribunal, which opined that the exemption should not be denied to the assessee. The Tribunal emphasized that the new flats received by the assessee were akin to an investment in a residential house, considering the sale of the old property and the allocation of new flats. The Tribunal concluded that the assessee's investment in the new flats qualified as an investment for the acquisition of a new residential house, thereby entitling the assessee to the exemption under Section 54 of the Income Tax Act.

In summary, the Tribunal's decision was upheld by the High Court, which affirmed that the Assessing Officer was not justified in disallowing the exemption under Section 54. The Court concurred with the Tribunal's finding that the assessee's receipt of sale consideration in cash and new flats constituted a valid investment towards the acquisition of a new residential property. Consequently, the Tax Appeal was dismissed, and no question of law was deemed to arise from the case.