2020 (8) TMI 358 - AT - Income Tax

Deduction u/s 54F - assessee allegedly did not fulfil the conditions of Section 54F - AO denied the exemption of long term capital gains on the reason that assessee on the date of transfer of original asset had more than one residential house although, both the assets were jointly owned by assessee with his wife - Assessee further contended alternatively that even if it is assumed that assessee continued to be owner of the property at Malibu Town, Gurgaon, assessee was joint owner of the property with 50% share and as such, cannot be considered as own residential house in terms of proviso to Section 54F - HELD THAT - If the ownership was recorded for maintenance purpose in the name of assessee, it is not relevant for satisfying the conditions of Section 2(47)(vi) - whatever objections have been raised by the authorities below, were no relevant to discard the explanation of assessee which is supported by the documentary evidences on record, genuineness of which, have not been doubted by the authorities below. The claim of assessee is also supported by the fact that assessee paid the capital gains tax on sale consideration of impugned property which have been accepted by the A.O. Similarly, the part of the share of wife of the assessee was also transferred and according to Learned Counsel for the Assessee in the case of wife of assessee the return have been accepted on identical facts under section 143(1) of the I.T. Act, 1961 and no reassessment proceedings have been initiated till date. The A.O, therefore, bound to follow the rule of consistency in the matter as well. In view of the above facts it is clear that assessee transferred the capital asset to his son with all rights, title, interest and enjoyment in the impugned immovable property through Agreement to Sell and Registered Transfer Deed, subject to consideration, therefore, assessee would not be having more than one residential house at the time of claiming exemption from capital gains and as such, A.O. was not justified in rejecting the claim of exemption under section 54F of the I.T. Act. For alternate contention assessee was having only 50% share in the impugned residential property which was sold to the son of the assessee. Therefore, A.O. cannot deny exemption under section 54F of the I.T. Act, 1961, to the assessee. The alternate contention of Learned Counsel for the Assessee is allowed. Assessee has genuinely transferred the impugned property in Malibu Town, Sohna Road, Gurgaon, to his son and satisfied the conditions of Section 54F of the I.T. Act. Thus, assessee would be entitled for exemption/deduction under section 54F of the I.T. Act. In view of the above, we set aside the Orders of the authorities below and delete the addition and direct the A.O. to allow exemption under section 54F of the I.T. Act to the assessee. In view of the above the other contentions of assessee regarding use of the impugned property for commercial purpose and consequential grounds are left with academic discussion only. We do not propose to decide the same. Ground No.1 of the appeal of the Assessee is allowed.

Issues Involved:
1. Substitution of Legal Representative.
2. Non-pressing of Ground No. 3.
3. Consequential Nature of Ground No. 2.
4. Disallowance of Deduction under Section 54F of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Substitution of Legal Representative:
The Assessee's appeal was initially filed by the original assessee who passed away on 05.11.2018. An application was filed to substitute the legal representative, Smt. Savita Bhasin, the deceased assessee's wife. The affidavit of Smt. Savita Bhasin and the death certificate were submitted, and the amended Form No. 36 was filed. There was no objection from the Revenue, and the substitution was allowed.

2. Non-pressing of Ground No. 3:
The Learned Counsel for the Assessee did not press Ground No. 3, which was consequently dismissed as not pressed.

3. Consequential Nature of Ground No. 2:
Ground No. 2 was stated to be consequential in nature and dependent on the findings of Ground No. 1.

4. Disallowance of Deduction under Section 54F of the I.T. Act, 1961:
The primary issue in Ground No. 1 was the disallowance of the deduction under Section 54F to the extent of ?4.40 crores. The facts of the case reveal that the Assessing Officer (A.O.) disallowed the deduction on the grounds that the assessee owned more than one residential house at the time of the transfer of the original asset, which is a condition for claiming the exemption under Section 54F.

The assessee sold land in Harsaru, Gurgaon, and invested part of the sale proceeds in eligible bonds under Section 54EC and deposited the remaining amount in the Capital Gain Account Scheme, subsequently purchasing a residential property. The A.O. denied the exemption under Section 54F, claiming that the assessee owned two residential properties jointly with his wife, which disqualified him from the exemption.

The assessee argued that the property in Malibu Town was transferred to his son through an Agreement to Sell before the sale of the land, making him eligible for the exemption. The A.O. considered the transaction a colorable device to avoid tax, noting discrepancies such as the unregistered agreement and the cheque payment being credited after the sale of the original asset.

The CIT(A) upheld the A.O.'s decision, citing that the transfer was not genuine and that the assessee continued to own the property. The CIT(A) also noted that the assessee invested in another property within a year, further disqualifying him from the exemption.

The Tribunal, however, considered the Agreement to Sell and subsequent registered Transfer Deed as valid, satisfying the conditions of Section 54F. The Tribunal also noted that joint ownership of a property does not equate to absolute ownership and thus does not disqualify the assessee from claiming the exemption. The Tribunal relied on various judicial precedents supporting the view that joint ownership does not bar the exemption under Section 54F.

The Tribunal concluded that the assessee genuinely transferred the property to his son and met the conditions of Section 54F, allowing the exemption. The Tribunal set aside the orders of the authorities below, directed the A.O. to allow the exemption, and dismissed the other contentions as academic.

Conclusion:
The Tribunal allowed the appeal of the Assessee, granting the exemption under Section 54F of the I.T. Act, 1961, and directed the A.O. to allow the deduction. The appeal was partly allowed, and the order was pronounced in the open court.

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