2024 (10) TMI 345 - AT - Income Tax

LTCG - denial of exemption u/s 54F - non-completion of construction within the stipulated period - assessee entered into a Joint Development Agreement ( JDA ) pursuant to which she was to receive a residential villa in exchange of her plot of land - HELD THAT - The dispute among the partners of the developers arose only after 25.10.2021 which is beyond the period of 3 years from the date of transfer of the capital assets which happens pursuant to the JDA on 31.5.2016. Admittedly, there is a delay of more than 7 years in completing the construction as against the period of years u/s 54F. The explanation given by the assessee that there was dispute among the Partners is not substantiated and rather it shows that the dispute arose only in the month of October, 2021 i.e. after a lapse of 5 years. No evidence has been filed to prove that some steps were taken to enforce his/her right pursuant to the agreement dated 31.05.2016 by the assessee for a period of more than 7 years. No email or correspondence has been brought to our notice demonstrating that serious efforts were made by the assessee to ensure due completion of the construction within the time granted by the statute. Assessee should be careful and vigilant in enforcing his right which are missing, in the present case. As we do not find any reason to interfere in the findings given by the AO/DRP and accordingly both the appeals of the assessee are dismissed.

Issues Involved:

1. Denial of exemption under Section 54F of the Income Tax Act, 1961.
2. Validity of Joint Development Agreement (JDA) as an instrument for claiming exemption.
3. Impact of non-completion of construction within the stipulated period on exemption eligibility.
4. Consideration of judicial pronouncements and circulars in favor of the assessee's claim.

Detailed Analysis:

1. Denial of Exemption under Section 54F:

The primary issue in the appeals was the denial of exemption under Section 54F of the Income Tax Act, 1961, claimed by the assessee. The Assessing Officer (AO) denied the exemption on the grounds that the assessee had not acquired legal title to the residential house/villa within the stipulated period as required by Section 54F. The assessee argued that the delay in construction was beyond their control due to disputes among the developer's partners and the COVID-19 pandemic. However, the AO and the Dispute Resolution Panel (DRP) found that these reasons were insufficient to grant the exemption, as the construction was not completed within the three-year period mandated by the statute.

2. Validity of Joint Development Agreement (JDA) as an Instrument for Claiming Exemption:

The assessee contended that the JDA, entered into on 31st May 2016, was an instrument of transfer of capital assets and should be considered for claiming exemption under Section 54F. The AO, however, rejected this argument, stating that the JDA did not confer legal title to the residential house/villa on the assessee within the required timeframe. The DRP upheld the AO's decision, emphasizing that the mere existence of a JDA does not fulfill the conditions for exemption under Section 54F unless the construction is completed and legal title is acquired within the statutory period.

3. Impact of Non-Completion of Construction within the Stipulated Period:

The construction of the residential villa was not completed within the three-year period specified under Section 54F, which was a critical factor in denying the exemption. The DRP noted that the dispute among the developer's partners arose only after the statutory period had lapsed, and no substantial evidence was provided by the assessee to demonstrate efforts to enforce the completion of construction within the allowed timeframe. The panel concluded that the delay in construction, even if beyond the assessee's control, did not justify the exemption under Section 54F.

4. Consideration of Judicial Pronouncements and Circulars:

The assessee attempted to rely on CBDT Circulars No. 471 of 1986 and No. 672 of 1993, which pertain to the treatment of allotment of flats under certain schemes as construction for the purposes of Sections 54 and 54F. However, the DRP found these circulars inapplicable to the assessee's case, as the circumstances did not align with the schemes described in the circulars. The panel emphasized that the exemption under Section 54F is contingent upon meeting specific statutory conditions, which were not satisfied in this case.

Conclusion:

The appeals were dismissed on the grounds that the assessee did not fulfill the conditions required for exemption under Section 54F of the Income Tax Act, 1961. The tribunal upheld the findings of the AO and the DRP, emphasizing the importance of acquiring legal title and completing construction within the stipulated period to qualify for the exemption. The judgment reiterated the necessity for taxpayers to diligently enforce their rights and comply with statutory requirements to avail tax benefits.

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