2022 (11) TMI 535 - AT - Income Tax

Deduction u/s. 54F - LTCG - purchase of land with old structure that is to be demolished - whether benefit of section 54F can be given in parts? - exigibility to tax of the capital gain arising to the assessee during the relevant previous year, which is on the sale of agricultural land and two residential flats and, for the purpose, the eligibility to deduction, if any, u/s. 54F of the Act in view of the investment of the transfer proceeds - HELD THAT - Exemption u/s. 54F is, as afore-noted, not exigible on transfer thereof. No material as to the residential house at Ganjipura, Jabalpur, the assessee s residence, as being not his house, has been furnished despite availing time for the same. Whichever way one may look at it, the assessee is not entitled to any exemption u/s. 54F. Without prejudice, even on the merits of the issue raised, we find no substance in the assessee s case. The plot purchased surely had a super-structure thereon. The purpose of purchasing the plot, however, by own admission, was to build a residential house thereon, with the super-structure thereon being only incidental. It is for this reason that the assessee intended to pay stamp duty only on the value of the plot and not the super-structure thereon which, unless being acquired for user, is valued at nil/nominal value; the scrap also entailing demolition cost, while striking a bargain for purchase and sale of IP, which also explains the non-mention thereof in the sale deed. No wonder, the dismantling thereof followed immediately after purchase, and it is admittedly only per chance that the dismantling was not complete at the time of spot inspection, resulting in stamp duty being also levied on the super-structure part. The whole premise of allowing exemption on acquisition of a residential house, whether by purchase or through construction, is an addition to the stock of inventory of residential house property of the Nation, so that capital gain to that extent is not subject to tax. Legislative intent is the foundational basis of any interpretive exercise and, therefore, the Courts are to keep the object in view while interpreting a provision (CIT v. Baby Marine Exports 2007 (3) TMI 206 - SUPREME COURT What has been in effect and substance purchased in the instant case, as also evidenced by the sale deed, is only a plot of land for construction of a residential house thereon. Rather, but for the demolition having been completed by the date of inspection, no stamp duty would have been paid on the structure part. No case for construction of a residential house has been preferred or pressed at any stage, including before us. The assessee is, accordingly, not entitled to any exemption u/s. 54F on the purchase of plot. Further still, the very fact of returning nil capital gain, determined at Rs. 46.93 lacs, implies the claim of exemption u/s. 54F qua the entire investment of Rs. 85 lacs, even as, as apparent, and not disputed at any stage, is the assessee s share in the property purchased being at one-half, so that only an investment of Rs. 42.50 lacs, if at all, could be taken into account for claim for exemption u/s. 54F, even as noticed by the AO. That apart, the same is exigible only in respect of capital gain arising on transfer of a long-term capital asset/s other than a residential house, so that it would not be entitled on capital gain arising on the sale of residential flats. This is being stated, as afore-said, without prejudice to the foregoing findings. The assessee s claim u/s. 54F is without any merit whatsoever. AO s action in denying the same is, for the reasons stated, which include that appealed to the AO, upheld.

Summary

Issues Involved:
Exigibility to tax of capital gain on sale of assets, eligibility for deduction under section 54F of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Exigibility to tax of capital gain
The appeal contested the order by the Commissioner of Income Tax (Appeals) dated 06/09/2016, regarding the assessment under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2012-13. The issue revolved around the capital gain arising from the sale of agricultural land and two residential flats, and the eligibility for deduction under section 54F of the Act based on the investment of the transfer proceeds. The appellant's grounds included violations of natural justice by the DCIT and errors in granting partial relief and disallowing exemptions.

Issue 2: Eligibility for deduction under section 54F
The appellant claimed exemption under section 54F for the entire capital gain on the sale of assets, citing the purchase of a plot of land for residential purposes. However, discrepancies arose regarding the nature of the property purchased and the applicability of the exemption. The Assessing Officer denied the claim based on the property being a plot of land, not a residential house. The appellant's representative argued for exemption under section 54F, emphasizing the intention to build a residential house on the purchased plot.

Analysis of Tribunal's Decision:
The Tribunal questioned the appellant's eligibility for exemption under section 54F, considering the ownership of multiple residential properties and the primary condition for deduction. Despite the appellant's admission of capital gain on the sale of flats, the Tribunal found no merit in the claim for exemption. The Tribunal highlighted the legislative intent behind section 54F to promote the addition of residential housing inventory. It concluded that the property purchased was a plot of land for construction, not a residential house, thus denying the exemption under section 54F. The Tribunal upheld the Assessing Officer's decision to deny the exemption, stating that the appellant's claim lacked merit.

Conclusion:
The Tribunal dismissed the appellant's appeal, upholding the denial of exemption under section 54F based on the nature of the property purchased and the capital gain arising from the sale of assets. The decision emphasized the legislative intent behind the provision and the lack of eligibility for exemption in the appellant's case.