2024 (11) TMI 817 - AT - Income Tax

LTCG - deduction u/s 54 - assessee received two flats in exchange for old properties under a redevelopment agreement - HELD THAT - As perused the provision of section 2(47) of the Act which define the terms transfer to include various kinds of transactions. This section defines transfer as the transfer of capital asset including the sale, exchange relinquishment or extinguishment of the capital asset or extinguishment of any right therein or the compulsory acquisition thereof under any law . Since in the case of the assessee there is an exchange of capital asset (old flats no. 266 and 273) for another capital assets (new flats no. 23 and 23B) as discussed as per the re-development agreement entered with the developer therefore we direct the assessing officer to allow the claim of deduction u/s 54 of the Act as directed by the ITAT in the above referred case of Shri Dilip P. Ahuja 2014 (10) TMI 1078 - ITAT MUMBAI

Summary

Issues:
Assessment of deemed income under section 56(2)(x) for receipt of additional carpet area in exchange for old properties. Claim of exemption under section 54 for capital gains on property transfer.

Analysis:
The appeal concerned the assessment year 2020-21 and was directed against the order of the Commissioner of Income-tax (Appeal). The assessee raised grounds challenging the treatment of deemed income under section 56(2)(x) and sought exemption under section 54 for capital gains on property transfer.

The assessing officer noted that the assessee received two flats in exchange for old properties under a redevelopment agreement. The market value of each flat was determined at Rs. 2,66,83,000, while the assessee paid Rs. 85,50,000 for each flat. The assessing officer treated the excess carpet area received by the assessee as deemed income amounting to Rs. 1,67,45,456.

The Commissioner of Income-tax (Appeal) dismissed the appeal and did not allow the alternative claim of exemption under section 54 for capital gains. The assessee contended that the additional carpet area received was in exchange for existing properties and that the capital gains should be exempt under section 54. The assessee cited various judicial pronouncements in support of this argument.

After considering the arguments, the Tribunal found that the assessee was entitled to deduction under section 54 for the cost of the new flats obtained in exchange for old properties. Citing a previous ITAT decision, the Tribunal held that the assessee's claim for deduction under section 54 was justified. The Tribunal directed the assessing officer to allow the claim of deduction under section 54, thereby partly allowing the appeal.

In conclusion, the Tribunal partly allowed the appeal, directing the assessing officer to allow the deduction under section 54 for the cost of the new flats obtained in exchange for old properties. The appeal was partly allowed, and the order was pronounced on 13.11.2024.