2021 (7) TMI 914 - HC - Income Tax

Exemption u/s 54F - Whether all the mandatory requirements and conditions were fulfilled on the facts and circumstances of the case? - HELD THAT - Exemption under Section 54 of the Act is dependant on the date of acquisition of the property and not on the date of payment made in respect of such property. It is also noteworthy to mention that to claim an exemption under Section 54F of the Act, it is not necessary that the same sale consideration should be used for construction of a new house property. It is also noteworthy that Section 54F of the Act is a beneficial provision, which has been enacted with an object to promote investment in housing and enable the assessee to save tax on capital gains. It is a well settled rule of interpretation that benevolent provision should be interpreted liberally bearing in mind the object for which the provision is enacted. From narration of aforementioned facts, it is evident that the assessee had complied with the conditions stipulated u/s 54F of the Act and was entitled for exemption. The finding recorded by the tribunal that since, payments were made prior to one year before the date of transfer of shares and therefore, the assessee is not entitled to claim exemption u/s 54F of the Act cannot but be termed as perverse.

Summary

Issues:
1. Interpretation of Section 54F of the Income Tax Act regarding exemption for capital gains on the acquisition of a new residential property.

Detailed Analysis:
1. The appellant, an individual, transferred shares resulting in long-term capital gains and claimed exemption under Section 54F of the Act for acquiring a new residential property. The Assessing Officer disallowed the claim, leading to appeals before the Commissioner of Income Tax and the Income Tax Appellate Tribunal. The main question was whether the appellant fulfilled all mandatory requirements for exemption under Section 54F.

2. The appellant argued that the property acquisition was through an agreement with a builder, and the property was registered in the appellant's name within three years of the share transfer. The appellant contended that the case involved property construction, not just purchase, citing relevant Circulars and legal precedents to support the claim for exemption under Section 54F.

3. The revenue, however, maintained that the appellant did not meet the conditions of Section 54F as determined by the authorities. They argued that the findings were based on evidence and not challenged as perverse. The revenue emphasized a strict interpretation of the exemption clause and referred to legal cases to support their stance.

4. The Court analyzed Section 54F, which allows exemption if a residential property is purchased within one year before or two years after the transfer date, or constructed within three years after the transfer. In this case, the property was acquired through an agreement before the share transfer, and the sale deed was executed within three years of the transfer, meeting the construction criteria. The Court highlighted that the exemption is based on the property acquisition date, not payment date, and should be liberally interpreted to promote housing investment and tax savings on capital gains.

5. Ultimately, the Court found that the appellant complied with Section 54F conditions and was entitled to exemption. The tribunal's finding that the appellant was not eligible due to payment timing was deemed perverse. Consequently, the Court quashed the tribunal's decision regarding the appellant's claim under Section 54F, ruling in favor of the appellant and allowing the appeal.