2023 (4) TMI 238 - AT - Income Tax

Nature of gain on sale of property - LTCG or STCG - short term capital gain arose on sale of residential property as per revenue - cost of acquisition determination - Property transfer by way of Power of Attorney - HELD THAT - As per the sale deed, the assessee became the owner of the property through Power of Attorney executed by Bharat Sareen wherein, there was no mentioning of the that the property devolved in favour of the assessee though any gift deed . We have perused the gift deed which is unregistered one. Since the gift deed falls under the documents which registration is compulsory as per section 17 of the Registration Act, 1908 the unregistered instrument of gift of immovable property does not have any legal sanctity. Therefore, considering the fact that the above property has been assigned by Shri Bharat Sareen by way of POA in favour of the assessee vide Power of Attorney and the same was sold by the assessee on 18.06.2008, the holding period of the same was not more than 36 months in the hands of the assessee - Lower authorities have committed no error in treating the same as short term capital gain . Decided against assessee. Benefit of exemption u/s 54 - Denial of deduction of basement floor on the ground that the benefit of can be passed on the assessee only in respect of one residential property instead of claim of 3 properties - HELD THAT - In the case of Tilokchand Sons 2019 (4) TMI 713 - MADRAS HIGH COURT has held that where the assessee HUF sold its residential house and invested capital gain in purchasing more than one residential houses within stipulated time limit assessee would be entitled to benefit of exemption u/s 54. Similarly in the decision of Khoobchand M. Makhija 2013 (12) TMI 1525 - KARNATAKA HIGH COURT held that acquisition of more than one residential house by assessee out of capital gains would not dis-entitle assessee from availing benefit conferred u/s 54 We are of the opinion that revenue/ department have erred in denying exemption claimed u/s 54 of the Act insofar as the basement floor is concerned. Therefore, we direct the AO to give the benefit of exemption u/s 54 of the Act in respect of Basement Floor. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Classification of capital gain as short-term or long-term.
2. Determination of the cost of acquisition.
3. Eligibility for exemption under Section 54 of the Income Tax Act for multiple properties.

Summary:

Issue 1: Classification of Capital Gain
The assessee contested the CIT(A)'s decision to classify the gain from the sale of residential property G-27, Ground Floor, Kalkaji, Delhi, as "short term capital gain" instead of "long term capital gain." The Tribunal upheld the CIT(A)'s decision, noting that the property was acquired through a registered General Power of Attorney on 26.05.2006 and sold on 18.06.2008, making the holding period less than 36 months. Therefore, the gain was correctly treated as short-term.

Issue 2: Determination of Cost of Acquisition
The assessee claimed the cost of acquisition for the ground floor property as Rs. 16,75,000, but the CIT(A) upheld Rs. 3,44,000 as the cost. The Tribunal agreed with the lower authorities, citing the registered Power of Attorney that indicated the purchase price as Rs. 3,24,000. The unregistered agreement to sell, which suggested a higher purchase price, lacked legal sanctity. Thus, the cost of acquisition was correctly determined as Rs. 3,44,000.

Issue 3: Eligibility for Exemption under Section 54
The assessee claimed exemption under Section 54 for investments in three properties, but the CIT(A) allowed exemption for only one property, G-66B, First Floor, Kalkaji, Delhi, amounting to Rs. 20,00,000. The Tribunal referenced multiple High Court decisions, including Arun K. Thiagarajan vs. CIT and Tilokchand & Sons vs. ITO, which interpreted the term "a residential house" to include multiple properties. Consequently, the Tribunal directed the AO to grant exemption under Section 54 for the basement floor property as well, aligning with the judicial precedents.

Conclusion:
The appeal was partly allowed, affirming the classification of the gain as short-term and the cost of acquisition as Rs. 3,44,000, but granting the exemption under Section 54 for multiple properties.