2015 (2) TMI 313 - AT - Income Tax

Deduction under provision of section 54F disallowed - long term capital gain on account of sale of shares of Hindustan Platinum Private Limited invested for acquisition of rights in a property - How the constructed building can be sold without ownership of the land being transferred? - Held that - The land is an independent and identifiable capital asset, which can be separate from superstructure built up on it. A person can be the owner of a superstructure and can earn income separately from such a superstructure, either in the form of rent or by gain on selling it. It is not necessary that the assessee should hold the exclusive right on the land while purchasing the house or vice versa. Such kind of arrangement always happen in the case of lease land. Therefore, we are unable to agree with the contention of the department that, simply because the property has been sold without the transferring the right in the land, the same cannot be held to be sale of property. - Decided in favour of assessee. Eligibility for claim of deduction u/s 54F is only on the purchase of a new and separate house rather than purchasing the shares / fractional interest in a property wherein the assessee himself is one of the co-sharers - Held that - Sale proceeds invested for purchase of interest in the residential house owned by the assessee s husband and son, amounts to purchase and hence entitled for exemption u/s 54F. Section 54F, per se, does not prohibit or bar that fractional interest or share in the property, which has been purchased, will not be entitled for deduction u/s 54F. Thus, following the said proposition we hold that the assessee is eligible for deduction u/s 54F on the amount spent on acquisition of rights in a property from the other members of the family or HUF. - Decided in favour of assessee. MoU, through which the assessee had acquired the rights in the property, has not been registered - Held that - For the purpose of attracting the provisions of section 54, it was not necessary that the assessee should become owner of the property on only through registration, as the section speaks of purchase and registration of document was not imperative. Thus, on all counts, the reasoning given by the A.O. as well as CIT(A) cannot be sustained in view of the aforesaid legal proposition discussed above. Accordingly, we hold that the assessee is eligible for claim of deduction of ₹ 60,95,000 u/s 54F in purchase of acquiring one half share of the residential house owned by Smt.Indrani Chandrakant Choksi, one of the members of the assessee-HUF. - Decided in favour of assessee.

Summary

Issues:
Claim of deduction u/s 54F for acquiring rights in a property.

Analysis:

Issue 1: Claim of deduction u/s 54F
The appellant appealed against the order passed by the Commissioner of Income-tax (Appeals) concerning the denial of deduction under section 54F of the Income Tax Act. The appellant had earned long term capital gains from the sale of shares and invested a portion in Rural Electrification Bonds. Additionally, the appellant claimed deduction u/s 54F for acquiring rights in a property. The property in question was a farmhouse constructed on land belonging to members of a Hindu Undivided Family (HUF). The appellant purchased a 50% share of the farmhouse from one of the HUF members. The Assessing Officer raised concerns about the property being sold without the land ownership being transferred. The appellant argued that ownership of the superstructure house could exist without land ownership, citing various High Court decisions. The issue revolved around whether the appellant, by acquiring a fractional interest in the property, was eligible for the deduction u/s 54F.

Issue 2: Interpretation of Legal Provisions
The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, emphasizing the need for the land ownership to be transferred along with the property. The Commissioner also highlighted the intention of section 54F to encourage the acquisition of new residential houses by individuals without existing residential accommodations. The appellant contended that the purchase of a fractional interest was permissible for claiming the deduction u/s 54F, citing relevant legal precedents. The appellant argued that registration of the Memorandum of Understanding (MoU) was not mandatory for claiming the deduction. The Tribunal analyzed the legal provisions and judicial decisions, concluding that the appellant was entitled to the deduction u/s 54F for acquiring a share in the residential house.

Issue 3: Judicial Precedents and Legal Interpretation
The Tribunal referred to various court decisions, including the Supreme Court ruling in CIT v. T.N. Aravinda Reddy, which established that purchasing a fractional interest in a property could qualify for deductions under relevant sections. The Tribunal also discussed the significance of land ownership and the independent nature of land as a capital asset, even when a superstructure is built upon it. The Tribunal held that the appellant's acquisition of a fractional interest in the property met the criteria for claiming the deduction u/s 54F. Additionally, the Tribunal clarified that registration of the MoU was not mandatory for availing the deduction.

Conclusion:
The Tribunal allowed the appellant's appeal, ruling in favor of the appellant's claim for deduction u/s 54F for acquiring a share in the residential house. The Tribunal emphasized the legality of purchasing a fractional interest in a property and clarified that registration of the MoU was not a prerequisite for claiming the deduction. The judgment highlighted the independent nature of land as a capital asset and affirmed the appellant's eligibility for the deduction under section 54F.