2019 (1) TMI 478 - HC - Income Tax

Exemption u/s 54F when property which was transfered was residential house - Held that - The assessee had booked a flat on 15.1.1981. The builder failed to complete the construction and the scheme ran into multiple legal disputes. These disputes travelled to the Bombay High Court. The Bombay High Court appointed a committee in the nature of Receiver and was asked to observe the completion of the construction. Under such circumstances, the construction was completed sometime on February, 2011. In the meantime, the assessee had sold the flat in the year 2005 which she had booked. The same was still under construction. The same resulted into long-term capital gain. It was in such peculiar facts that the Tribunal held that the assessee cannot be said to have transfered a capital asset in the nature of residential house. We may recall that the assessee had booked the flat far back in January 1981 and till the time, she sold for the same in the year 2005, completion of Constitution was nowhere in the sight. It was only with the intervention of the High Court and the steps taken by the Committee appointed by the High Court that the construction could be completed much later in the year 2011 - Decided against revenue

Summary

Issues:
1. Interpretation of Section 54F of the Income Tax Act regarding exemption for transfer of long-term capital asset.
2. Determination of whether the property transferred can be considered a residential house for the purpose of claiming exemption under Section 54F.

Analysis:
1. The High Court heard an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the exemption under Section 54F of the Income Tax Act. The main issue was whether the Tribunal was justified in confirming the order of the Commissioner of Income Tax (Appeals) in allowing the exemption under Section 54F, despite the property transferred being a residential house. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision based on the factual matrix of the case.

2. The assessee, an individual, claimed exemption under Section 54F for the assessment year 2006-07. The Revenue objected to this claim, arguing that the property sold was a residential unit and not eligible for the exemption. The Tribunal examined the peculiar facts of the case, where the assessee had booked a flat in 1981, but due to construction delays and legal disputes, the property was still under construction when sold in 2005. The Bombay High Court intervened, appointing a committee to oversee completion, which was done in 2011. The Tribunal concluded that the property could not be considered a residential house at the time of transfer, thus upholding the CIT(A)'s decision.

3. Section 54F provides exemption for long-term capital gains arising from the transfer of a capital asset other than a residential house, subject to certain conditions. In this case, the Tribunal found the facts to be unique, with the property being sold before completion despite being booked in 1981. The completion only occurred in 2011 due to court intervention. Considering these circumstances, the Tribunal held that the property did not qualify as a residential house at the time of transfer, justifying the allowance of exemption under Section 54F. The High Court affirmed the Tribunal's decision, dismissing the Revenue's appeal based on the specific circumstances of the case.