2019 (7) TMI 602 - AT - Income Tax

Exemption u/s 54 - sale of residential property OR vacant land with malba - builder demolished and redeveloped the old residential property into new residential building consisting of ground floor, 1st floor, second and third floor - HELD THAT - From the records it can be seen that it is an undisputed fact that the subject property was being used as residential house by the assessee from the period of its purchase on 09.08.2007 to the date of handing over its vacant possession to the builder for re-development and construction vide collaboration agreement dated 18.04.2012. From the Clause of collaboration agreement, it can be seen that what was transferred / handed over to the builder was the existing structure of the residential property. The builder demolished and redeveloped the old residential property into new residential building consisting of ground floor, 1st floor, second and third floor. Thus, the assessee lost all rights upon the entire existing structure which comprises residential house. The reliance upon the decision in case of Ved Prakash Rakhra 2012 (10) TMI 286 - KARNATAKA HIGH COURT as well as Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT and CIT vs. Smt. K.G. Rukminiamma 2010 (8) TMI 482 - KARNATAKA HIGH COURT are apt in present case. By virtue of collaboration agreement, the assessee permanently lost the share beyond the 1st floor in the old residential property i.e. from 2nd floor onwards and in fact received the share up to the 1st floor in the newly constructed residential building. So the assessee permanently dis-possessed of 2nd floor onwards in old and new residential property. Thus, the assessee has rightly claimed exemption u/s 54. As per the provisions of Section 54, the assessee purchased residential property. The said property was held by the assessee for more than three years from the date of acquisition and it is a case of long term capital gain on transfer of residential property. The said residential property was subject matter of Collaboration Agreement dated 18.04.2012 under which the possession was transferred to the developer and the rights of the purchased property were lost. The consideration received by the assessee under Collaboration Agreement was ₹ 5.50 cores and also the cost of construction of the area of building coming to the share of the assessee which was comprising of area in basement, ground floor and first floor and the said amount was to be treated as sale consideration on account of transfer of the property by the assessee to the builder under Collaboration Agreement. The gain arising on the said transfer was utilized for purchase of residential property at Greater Kailash-III, New Delhi as per the sale registration dated 09.07.2013. Thus the new residential property was acquired within two years from the date of transfer of the said property i.e. date of collaboration on 18.04.2012. Thus, there is no need to interfere with the findings of the CIT(A). Assessing Officer was not correct in disallowing the claim u/s 54 of the Income Tax Act, 1961. The appeal of the revenue is dismissed.

Summary

Issues involved:
1. Whether the property transferred under a collaboration agreement qualifies as a residential property for exemption under section 54 of the Income Tax Act.
2. Whether the rights transferred under the collaboration agreement constitute a long-term capital asset.
3. Whether the assessee is eligible for exemption under section 54F instead of section 54.
4. Whether the CIT(A) erred in allowing the claim of the assessee under section 54.
5. Whether the collaboration agreement resulted in the permanent dispossessing of the assessee of the property.

Detailed Analysis:
1. The appeal was filed against an order passed by CIT(A) regarding the assessment year 2013-14. The assessing officer contended that the property transferred by the assessee to the builder under a collaboration agreement was not a residential property but rights on a piece of land, thus disqualifying the assessee from exemption under section 54. The CIT(A) allowed the appeal of the assessee, leading to a dispute on whether the transferred property qualified as residential.

2. The collaboration agreement involved the transfer of the existing structure of a residential property to the builder for redevelopment. The builder demolished the old structure and constructed a new building, resulting in the assessee losing all rights over the existing structure, which constituted a residential house. The assessee's contention was supported by legal precedents, emphasizing the permanent dispossession of the assessee from the property beyond the first floor, justifying the claim for exemption under section 54.

3. The collaboration agreement led to the permanent loss of the assessee's share in the old and new residential property beyond the first floor. The possession was transferred to the builder, and the consideration received by the assessee was treated as the sale consideration for the transfer. The gain from the transfer was utilized to purchase a new residential property within the stipulated time frame, fulfilling the conditions for exemption under section 54. The CIT(A)'s decision was upheld based on the details provided during the assessment proceedings.

4. The assessing officer's denial of the claim under section 54 was deemed incorrect, as the transferred property met the criteria for exemption. The collaboration agreement resulted in the loss of rights over the existing structure, qualifying the transaction as a transfer of a residential property for which exemption under section 54 was applicable. The CIT(A)'s decision to allow the claim was upheld, and the revenue's appeal was dismissed.

5. The collaboration agreement effectively led to the permanent dispossession of the assessee from the property beyond the first floor, establishing the nature of the transfer as a residential property. The agreement facilitated the construction of a new residential building, with the consideration received by the assessee utilized to purchase another residential property within the specified period. The details presented during the assessment proceedings supported the assessee's claim for exemption under section 54, ultimately resulting in the dismissal of the revenue's appeal.