2023 (6) TMI 1132 - AT - Income Tax

Correct head of income - gains received on sale of property - business income or capital gains - whether the assessee is eligible for claim of deduction u/s 54F of the Act in respect of reinvestment made in residential property? - HELD THAT - We find that the assessee had bought the properties from financial year 2008-09 till assessment year 2010-11 in the capacity of investor, which has been accepted by learned Assessing Officer. Part of these assets were sold by the assessee in assessment years 2011-12 and 2012-13. The capital gains arising out of such sale has duly been disclosed by the assessee in assessment year 2011-12 and accepted as such by the revenue, though u/s 143(1) of the Act. For the purpose of arriving at the capital gains in respect of sale of property in assessment year 2012-13, we find that the assessee had indeed considered the sale price as determined by the Stamp Valuation Authority in terms of section 50C of the Act as the actual sale consideration was less than the circle rate. This clearly shows the intention of the assessee that she always wanted to remain only as an investor and never intended to carry on any business on the property. Thus we are of the considered view that the gains arising on the sale of the property to the assessee has to be taxed only as capital gains and not as income from business. Consequently, the assessee would be eligible for deduction u/s 54F of the Act in respect of reinvestment of capital gains made in the house property.

Summary

Issues involved:
The main issue in this case is whether gains from the sale of property should be treated as business income or capital gains. An interconnected issue is whether the assessee is eligible for deduction under section 54F of the Act for reinvestment in residential property.

Details of the Judgment:

Issue 1: Treatment of gains from property sale

The assessee, engaged in real estate commission agency, filed a belated return for AY 2013-14, declaring income with capital gains. The Assessing Officer treated the gains as business income due to selling properties in plots, but the assessee claimed to be an investor. The Tribunal found that the assessee bought properties as an investor and disclosed capital gains in previous years. The stamp valuation authority's sale price was considered, showing the intention to remain an investor. The Assessing Officer's treatment as business income was deemed unjustified as provisions for such treatment were not applicable for the relevant assessment years.

Issue 2: Eligibility for deduction under section 54F

The Tribunal concluded that the gains should be taxed as capital gains, making the assessee eligible for deduction under section 54F. However, as the Assessing Officer did not address the quantum of deduction under section 54F, the Tribunal directed a review of this specific aspect. The appeal was allowed for statistical purposes.

This judgment highlights the importance of assessing the nature of property transactions to determine the appropriate tax treatment and eligibility for deductions under relevant sections of the Income Tax Act.

Please note that the judgment was delivered by Shri Saktijit Dey, Vice President, and Shri M. Balaganesh, Accountant Member of the Appellate Tribunal ITAT DELHI.