2023 (3) TMI 857 - AT - Income Tax

Deduction u/s 54F - Long Term Capital Gains (LTGC) was not offered to tax - tenancy of the assessee was nothing but a colourable device - HELD THAT - On the first issue wherein Ld. AO has stated that tenancy was nothing but a colourable device, submitted that father of the assessee was not a director at the relevant time, who had died way back in 1963 and thereafter the affairs of the said company were looked after by its Board of Directors. Further, as submitted that GSPL had entered into an agreement with CDPL in 1995 for the development of properties which was after a gap of 32 years of the death of father of assessee. Thus, the allegation of colourable device for the transfer is the so-called planning qua transfers after more than 30 years is misplaced and erroneous on the part of the Ld. AO. M/s. B. K. Tushar, HUF was the tenant of the property and not the assessee or his spouse and the assessee could not relinquish the tenancy rights which did not belong to him - As already stated, rent receipt issued by GSPL also reflects the name of the assessee and his spouse as tenants and the rent payments were also admittedly made from the individual bank account of these two tenants. In this respect, findings given by the Ld. CIT(A) are also noted, who had also held that conclusion of AO on B. K. Tushar, HUF being the tenant and not the assessee is erroneous and untenable on facts. Considering the facts on record, perusal of the settlement agreement dated 28.10.2013 along with evidence for payment of rentals by the assessee and his spouse, corroborated by individual bank statements and well reasoned findings given by the Ld. CIT(A), we do not find any reason to interfere with the findings given by the Ld. CIT(A) in this respect. Decided against revenue.

Summary

Issues Involved:
1. Whether the tenancy of the assessee was a colorable device to evade capital gains tax.
2. Whether M/s. B. K. Tushar, HUF was the actual tenant and not the assessee or his spouse, thereby invalidating the claim of exemption under section 54F of the Income-tax Act.

Summary:

Issue 1: Colorable Device Allegation
The Revenue contended that the tenancy was a colorable device to evade capital gains tax, citing that the father of the assessee was a director of M/s. Gyaniram & Sons Pvt. Ltd. (GSPL). The Tribunal noted that the father had died in 1963, and the development agreement between GSPL and Concrete Developers Pvt. Ltd. (CDPL) was entered into in 1995, 32 years later. The Tribunal agreed with the CIT(A)'s observation that the transaction could not be a colorable device, given the long period and the genuine tenancy evidenced by rental receipts and bank statements. The Tribunal upheld CIT(A)'s finding that the transaction was not a colorable device.

Issue 2: Actual Tenant and Exemption under Section 54F
The AO argued that M/s. B. K. Tushar, HUF was the actual tenant, not the assessee or his spouse, based on a security deposit refund agreement. The Tribunal found that the tenancy was in the names of the assessee and his spouse, as evidenced by rent receipts and bank statements. The Tribunal agreed with CIT(A) that the HUF received the deposit for convenience and that the actual tenants were the assessee and his spouse. Consequently, the Tribunal upheld the CIT(A)'s decision that the assessee was entitled to the exemption under section 54F of the Income-tax Act for the flat valued at Rs.2,26,37,500/-.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the assessee was lawfully entitled to the benefit of exemption under section 54F, and the transaction was not a colorable device. The appeal of the revenue was dismissed.