2023 (1) TMI 668 - AT - Income Tax

Exemption u/s 54F - STCG or LTCG - date of transfer of asset u/s 2(47) - when did transfer took place? - HELD THAT - The property in reference' (1st Floor) came into existence only after the Occupancy Certificate has been obtained. Before this, 'the first floor' was never in existence. Provision of Section 2(47) of the Act read with Section 53A of the Transfer of Properties Act, 1882, are not applicable to the facts of the present case as the appellant never obtained the possession of the 1st Floor on 26.05.2011 from which capital gain has accrued. Moreover, in order to comply with the provision of Section 53A of the Transfer of Properties Act, it is essential that the possession should combine with the part/ full payment also, which are not the facts of the present case. As the appellant has acquired 'the 1st floor of the immovable property situated at Section 15A, Faridabad' on 12.12.2012. It is, therefore, held that the AO was justified in treating the same as short-term capital asset and denying the benefit of deduction - Decided in favour of revenue.

Summary

Issues:
1. Disallowance of exemption under section 54F.
2. Consideration of facts related to exemption claimed under section 54.
3. Interpretation of agreement dated 26/05/2011 for transfer of property.
4. Application of Section 2(47) of the Income Tax Act, 1961.
5. Possession and payment in relation to Section 53A of the Transfer of Property Act, 1882.

Analysis:
1. The appeal concerns the disallowance of exemption under section 54F by the Assessing Officer (AO) in the assessment proceedings. The assessee argued that the disallowance of the exemption under section 54F, not claimed in the income tax return, should not enhance the income. Additionally, the AO did not consider the facts of the case where the assessee claimed exemption under section 54 for utilizing LTCG against the purchase of a residential flat, leading to a legitimate claim for exemption.

2. The case revolves around an agreement dated 26/05/2011 for the transfer of property between the assessee, the assessee's mother, and mother's sister. The agreement established a right in personam in favor of the assessee, constituting a transfer as defined under section 2(47) of the Income Tax Act, 1961. The AO's failure to consider this agreement during assessment proceedings and his incorrect determination of the transfer date led to the disallowance of the claimed deduction under section 54, which the assessee argued was unjustified.

3. The interpretation of the agreement dated 26/05/2011 is crucial in determining the eligibility for exemption under section 54. The agreement detailed the transfer of the property to the assessee after necessary construction, with the first floor coming into existence only after obtaining the Occupancy Certificate. The application of Section 2(47) of the Act and Section 53A of the Transfer of Properties Act, 1882, was deemed inapplicable by the AO, leading to the denial of the deduction under section 54. The CIT(A) upheld this decision based on the specific circumstances of the case.

4. The application of Section 2(47) of the Income Tax Act, 1961, in conjunction with Section 53A of the Transfer of Property Act, 1882, is pivotal in determining the possession and payment aspects related to the transfer of property. The distinction between possession and payment, as evidenced by the facts of the case and the agreement, played a significant role in the AO's decision to treat the property as a short-term capital asset, thereby denying the deduction under section 54.

5. The absence of attendance by the assessee in the proceedings and the subsequent dismissal of the appeal by the CIT(A) further solidified the AO's decision regarding the treatment of the property as a short-term capital asset. The lack of contrary material presented by the assessee to rebut the findings of the CIT(A) led to the affirmation of the decision, resulting in the dismissal of the appeal and the confirmation of the AO's treatment of the property for tax purposes.