2021 (1) TMI 287 - AT - Income Tax

Denial of exemption under Section 54F - agreement of sale was not registered - HELD THAT - Agreement for sale of flats between the M/s Siddi Constructions and the assessee is enclosed. A.O. has not disputed the agreement of sale entered by the assessee with M/s Siddi Constructions but he only alleged that the document is not registered and accept the facts that the M/s Siddhi Construction has delivered and confirmed that the assessee has purchased 12 flats as per the agreement of sale in 3 floors and the registration formalities have to be completed. Under the provisions of Sec. 54F of the Act, the residential property should be purchased within a specified time for claim of exemption and the A.O. has not disputed. There is no mandatory requirement of registration at the time of entering into agreement. Therefore, we are of the view, that though residential property is not registered but the assessee was able to prove the possession and confirmed by the builder, the exemption cannot be denied on this ground. Assessee is entitled for exemption under Section 54F of the Act for more than one residential flat in the same complex - The amendment to Section 54F of the Act in Finance Act, 2014 is effective from Assessment Year 2015-16. We also rely on the observations of CIT Vs. V R Karpagam 2014 (8) TMI 899 - MADRAS HIGH COURT where it was held that the Amendment to Section 54F of the Act being Para Materia to the Section 54 of the Act with regard to substitution of Residential Unit by Finance Act No.2, 2014 was operative only effective w.e.f. 1.4.2015 whereby exemption for more than one unit /flat (residential house) is to be withdrawn. However, prior to the aforesaid amendment a residential house would include multiple flats, residential units in the same apartment building. Thus we are of the substantive opinion that the assessee is entitled for residential flats exemption under Section 54F - Decided in favour of assessee.

Summary

Issues:
1. Denial of exemption under Sec. 54F of the Act due to unregistered agreement.
2. Denial of exemption under Sec. 54F of the Act for multiple residential flats.
3. Interpretation of Section 54F of the Act.

Analysis:

Issue 1: Denial of exemption under Sec. 54F of the Act due to unregistered agreement
The assessee appealed against the order passed by the CIT(A)-3, Mumbai under sections 143(3) r.w.s 263 and 250 of the Income Tax Act. The dispute arose when the Assessing Officer (A.O.) denied the claim of exemption under Sec. 54F of the Act, citing that the agreement of sale for the flats was not registered. However, the Tribunal noted that possession of the residential property was confirmed by the builder, even though registration formalities were pending. The Tribunal held that registration at the time of entering into the agreement was not mandatory under the Act. Therefore, the Tribunal concluded that the exemption could not be denied solely on the ground of lack of registration.

Issue 2: Denial of exemption under Sec. 54F of the Act for multiple residential flats
The second issue revolved around the denial of exemption under Section 54F of the Act to the assessee by the Assessing Officer. The assessee contended that they were entitled to exemption under Section 54F for more than one residential flat in the same complex. The Tribunal referred to the relevant provisions of Section 54F and cited case law to support the contention that prior to the amendment effective from Assessment Year 2015-16, a residential house could include multiple flats or residential units in the same building. Relying on judicial precedents, the Tribunal held that the assessee was indeed entitled to claim exemption for multiple residential flats under Section 54F of the Act. Consequently, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to grant the exemption as per the provisions and case law discussed.

Issue 3: Interpretation of Section 54F of the Act
The Tribunal further delved into the interpretation of Section 54F of the Act, emphasizing the legislative intent and judicial pronouncements on the matter. By analyzing the provisions of the Act and relevant case law, the Tribunal concluded that the assessee's claim for exemption under Section 54F for multiple residential flats was valid and in accordance with the law. The Tribunal highlighted the effective date of the amendment to Section 54F and clarified that the assessee's entitlement to exemption was consistent with the legal framework. Therefore, the Tribunal allowed the assessee's appeal, setting aside the decision of the lower authorities and directing the Assessing Officer to grant the exemption under Section 54F of the Act.

In conclusion, the Tribunal's detailed analysis and interpretation of the provisions of the Income Tax Act, along with the application of relevant case law, resulted in a favorable outcome for the assessee regarding the denial of exemption under Section 54F for unregistered agreements and multiple residential flats.