2019 (12) TMI 679 - AT - Income Tax

Exemption under Section 54F - whether the property acquired by the assessee by means of perpetual lease for unlimited period would amount to purchase ? - HELD THAT - Assessee was in possession of residential house. Therefore this Tribunal is of the considered opinion that in view of the definition found in Section 2(47)(vi) of the Act the transaction of perpetual lease agreement by which the assessee took possession of property for unlimited period has to be construed as purchase of property within the meaning of Section 54F of the Act. Section 269UA(2)(iii)(f) defines transfer which includes lease for a term not less than twelve years. In this case admittedly the lease was not for less than twelve years. Hence for all practical purposes the acquisition of property by perpetual lease exceeding the period of twelve years has to be construed as purchase within the meaning of Section 54F of the Act. In view of the scheme under the provisions of the Income-tax Act as enunciated under Section 2(47)(vi) and Section 269UA(2)(iii)(f) this Tribunal is of the considered opinion that when the assessee acquired the residential house by means of perpetual lease exceeding twelve years it has to be construed as acquisition of property / purchase of property within the meaning of Section 54F of the Act. Therefore the assessee is entitled for exemption under Section 54F of the Act. Hence this Tribunal is unable to uphold the order of the Principal Commissioner passed under Section 263 of the Act. Accordingly the impugned order of the Principal Commissioner is quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for exemption under Section 54F of the Income-tax Act, 1961.
2. Interpretation of "purchase" under Section 54F in the context of a perpetual lease.
3. Applicability of Sections 2(47)(vi) and 269UA(2)(iii)(f) of the Income-tax Act, 1961.

Detailed Analysis:

1. Eligibility for Exemption under Section 54F:
The primary issue revolves around whether the assessee is eligible for exemption under Section 54F of the Income-tax Act, 1961. The Assessing Officer had allowed the exemption, but the Principal Commissioner of Income Tax (PCIT) challenged this decision, arguing that the property was acquired through a perpetual lease, not an outright purchase. Section 54F provides that capital gains from the transfer of a long-term capital asset shall not be charged if the assessee purchases or constructs a residential house within specified timeframes. The Tribunal examined whether a perpetual lease qualifies as a "purchase" under this provision.

2. Interpretation of "Purchase" under Section 54F:
The Tribunal scrutinized the language of Section 54F, which necessitates a purchase or construction of a residential house within certain periods. The assessee had entered into a perpetual lease agreement for an unlimited period, granting enduring rights to possess and enjoy the property. The Tribunal considered whether this arrangement could be construed as a purchase. The Tribunal noted that the perpetual lease allowed the assessee to transfer the lease/possession to others, thus providing significant ownership-like rights.

3. Applicability of Sections 2(47)(vi) and 269UA(2)(iii)(f):
To determine if the perpetual lease qualifies as a purchase, the Tribunal referred to Sections 2(47)(vi) and 269UA(2)(iii)(f) of the Income-tax Act. Section 2(47)(vi) includes transactions that enable the enjoyment of immovable property as "transfers" of capital assets. Section 269UA(2)(iii)(f) considers leases for terms not less than twelve years as transfers. The Tribunal emphasized that the perpetual lease agreement, which exceeds twelve years, should be construed as a purchase. This interpretation aligns with the definitions provided in these sections, thereby supporting the assessee's claim for exemption under Section 54F.

Conclusion:
The Tribunal concluded that the perpetual lease agreement, granting the assessee enduring rights to the property, qualifies as a purchase under Section 54F. The Tribunal quashed the order of the Principal Commissioner, affirming the assessee's eligibility for exemption. The appeal filed by the assessee was allowed, and the order was pronounced on 6th December 2019 at Chennai.