2005 (12) TMI 258 - AT - Income Tax

Summary

Issues Involved:
1. Denial of exemption from capital gains under section 54F of the IT Act, 1961.
2. Validity of the revised return filed by the assessee.
3. Ownership of the property and its implications on the exemption claim.

Issue-Wise Detailed Analysis:

1. Denial of Exemption from Capital Gains under Section 54F of the IT Act, 1961:
The primary issue in this appeal is the denial of exemption from capital gains under section 54F of the IT Act, 1961, in respect of the construction of one residential house. The assessee filed a return of income for the assessment year 1996-97, claiming exemption under section 54F due to investment in a residential house. However, the AO disallowed this exemption, reasoning that the assessee owned another residential house, which disqualified him from claiming the exemption under section 54F. The CIT(A) confirmed the AO's findings, leading to the present appeal before the Tribunal.

2. Validity of the Revised Return Filed by the Assessee:
The assessee raised additional grounds questioning whether the AO erred in acting on a revised return that was filed out of time and barred by limitation as per section 139(5) of the Act. The original return was filed on 2nd July 1996, within the due date, but the revised return was filed on 21st August 1998, beyond the permissible period, making it invalid. Both the learned counsel for the assessee and the learned Departmental Representative agreed that the revised return was barred by limitation. The Tribunal admitted this additional ground for consideration.

The Tribunal concluded that the AO did not act on the revised return but merely used the information from it, specifically the declaration of income from another house property. The assessment was based on the original return, and the revised return was considered non est (invalid). The Tribunal upheld the lower authorities' decision to disallow the exemption under section 54F based on the original return.

3. Ownership of the Property and Its Implications on the Exemption Claim:
On the merits, the assessee argued that the property from which rental income was declared belonged to a bigger HUF and not to him individually. The property in question was part of a family partition deed dated 11th March 1976, where it was agreed that certain properties would remain common to the HUF. Litigation ensued, leading to a partition suit filed by one of the coparceners, resulting in a court order on 8th March 1996, dividing the property into four equal shares.

The Tribunal examined whether the assessee owned the property at the relevant time. It was determined that the property was vested in the HUF until the appellate court's decision on 10th July 1998, which upheld the partition order. The Tribunal concluded that the assessee became the vested owner of his share only after this date. Therefore, for the assessment year 1996-97, the property was still owned by the HUF, and the assessee did not own another residential house.

The Tribunal referred to the legal principle that ownership is either vested or contingent, citing Salmond on Jurisprudence and the Supreme Court's decision in CIT vs. Podar Cement (P) Ltd. It was concluded that the assessee had only a contingent right to the property until the appellate court's decision, and thus, he was not the owner of another residential house during the relevant assessment year.

Conclusion:
The Tribunal allowed the appeal on merits, holding that the assessee was entitled to exemption under section 54F of the Act for investing long-term capital gains in the construction of a new residential house. The orders of the lower authorities were set aside, and the appeal was allowed.