2020 (11) TMI 933 - AT - Income Tax

Denying deduction u/s 54F(3) - as per the joint development agreement dated 29/07/2010, the transfer of land given for development purpose amounts to transfer within the meaning of section 2(47) and thus development agreement dated 29/07/2010 is antivirus to the provisions of section 54F(3) - assessee stressed that she has purchased only land to construct a residential house and transferred the said land to the developer, therefore ld.AR argued that the assessee has not violated any of the provisions of section 54 F(3) - HELD THAT - From combined reading of the development agreement, MoU and facts placed before us it is understood that the assessee has sold the 03 pieces of land and constructed a residential unit within the time specified in section 54F - As per the statement of facts placed before CIT(A) the entire transaction was completed within the time allowed u/sec. 54Fwhich clearly reveals that there were no separate transactions. By any stretch of imagination AC shed of 50 sq.ft. cannot be stated to be a residential house and at best it can be called as a security guard s room for guarding premises. Residential unit comprises of kitchen, bed rooms, hall, toilets etc. Therefore we are of the considered view that the assessee has sold the 03 pieces of land and constructed a single residential unit comprising of 3296 sq.ft. as a duplex unit as mentioned in development agreement and MoU for which the assessee had spent a sum of ₹ 65,88,000/- registration charges and additional sum of ₹ 40.00 lakhs as per MoU dated 29/07/2010 aggregating to ₹ 1,11,47,230/- and the assessee is entitled for deduction u/sec. 54F and withdrawal of deduction allowed u/sec. 54F by the AO is bad in law. Allow the appeal of the assessee.

Summary

Issues:
Denial of deduction under section 54F(3) of the Income Tax Act.

Analysis:
The case involved the denial of deduction under section 54F(3) of the Income Tax Act, 1961. The assessee, an individual, had sold three pieces of land and deposited the proceeds in a Capital Gains Deposit Scheme. Subsequently, she purchased a land with a shed, intending to construct a residential unit. The assessee entered into a development agreement with a builder, retaining 2/3rd of the land and constructed area. The Assessing Officer (AO) viewed this transfer as a violation of section 54F and taxed the amount under long-term capital gains. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading the assessee to appeal to the Tribunal.

During the appeal hearing, the assessee argued that she had purchased the land for construction purposes and had not violated section 54F(3) as the entire process was completed within the specified time frame. The Department, however, contended that the property was transferred within three years, contrary to the provisions of section 54F. The Tribunal examined the facts and documents, including the development agreement and Memorandum of Understanding, to determine the nature of the transaction.

The Tribunal found that the assessee's intention was clear to construct a residential unit on the purchased land. The development agreement specified the construction of a residential unit comprising of two floors, which the assessee retained as a single unit. The Tribunal noted that the AC shed purchased with the land was not a residential house but rather a security guard's room. Therefore, the Tribunal concluded that the assessee had sold the land and constructed a single residential unit within the specified time frame under section 54F. The Tribunal allowed the appeal, setting aside the lower authorities' orders and deleting the addition made by the AO.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and granting the deduction under section 54F of the Income Tax Act.