2019 (12) TMI 373 - AT - Income Tax

Deduction u/s 54/54F disallowed - AO considered the 1/3rd of presumed cost of construction as capital gains and added the same in the income of the assessee - AO has mentioned that the assessee has sold the second floor of the property. Finally, he submitted that the assessee in lieu of the sale consideration of the first floor of the property, got the ground floor and the second floor of the property constructed from the builder which is only one unit and as such the assessee is entitled to exemption of capital gains in full and not proportionately - HELD THAT - Exactly similar issue has already been adjudicated and decided in favour of the assessee by the Hon ble Delhi High Court in the case of Commissioner of Income Tax vs. Geeta Duggal 2013 (3) TMI 101 - DELHI HIGH COURT where it was held that unable to see how or why the physical structuring of the new residential house,whether it is lateral or vertical, should come in the way of considering the building as a residential house. The residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. The addition in dispute is deleted - appeal of the assessee allowed.

Summary

Issues:
Assessment of long term capital gain on transfer of property rights under collaboration agreement; Claim of exemption u/s. 54 of the Income Tax Act; Interpretation of relevant legal provisions and case laws.

Analysis:
The appeal before the Appellate Tribunal ITAT DELHI involved the assessment of long term capital gain on the transfer of property rights by the assessee under a collaboration agreement. The case revolved around the computation of taxable income for Assessment Year 2016-17. The assessee had entered into a collaboration agreement for dismantling an old building and constructing a new one. The AO observed that the assessee declared long term capital gain and claimed exemption u/s. 54 of the Act. However, the AO disallowed the full exemption as the assessee had retained certain property rights. The AO added a deemed long term capital gain to the assessee's income, leading to an assessment of income at a specific amount.

During the appeal, the assessee argued that the entire consideration for the first floor of the property was reinvested in the construction of the ground and second floors. The assessee contended that the AO wrongly assumed the sale of the second floor and miscalculated the capital gains. The assessee highlighted a judgment by the Hon'ble Delhi High Court in a similar case, emphasizing that the physical structuring of the residential property should not impede the allowance of deduction under relevant sections of the Act.

The Appellate Tribunal analyzed the arguments presented by both parties, reviewed the orders of the revenue authorities, and considered the provisions of section 54 of the Income Tax Act. The Tribunal referenced the judgment of the Hon'ble Delhi High Court in a comparable case, which clarified that the construction of a residential house should be for residential use, not commercial, and the physical structuring should not hinder the deduction under relevant sections. Based on this precedent, the Tribunal ruled in favor of the assessee, deleting the addition of deemed long term capital gain and allowing the appeal.

In conclusion, the Tribunal's decision was guided by the interpretation of legal provisions, relevant case laws, and the principle that the physical structuring of a residential property should not obstruct the allowance of deductions under the Income Tax Act. The Tribunal's ruling aligned with the judgment of the Hon'ble Delhi High Court, leading to the deletion of the addition in dispute and the allowance of the assessee's appeal.