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2025 (1) TMI 1163 - AT - Income TaxLTCG - denial of exemption u/s 54F - Multiple house property owned by assessee - HELD THAT - We hold that the assessee was not owning more than one house property on the date of transfer of original capital asset and accordingly would be entitled for claim of exemption under section 54F of the Act in the sum of Rs. 3, 83, 55, 102/-. Accordingly ground raised by the assessee are allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in affirming the Assessing Officer's (AO) decision to deny the assessee's claim for exemption under Section 54F of the Income-tax Act, 1961, in relation to the reinvestment made in a residential property. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 54F of the Income-tax Act provides an exemption from capital gains tax if the proceeds from the sale of a long-term capital asset are reinvested in a residential property, subject to certain conditions. One key condition is that the assessee should not own more than one residential house, other than the new asset, on the date of the transfer. The Tribunal referred to several precedents, including the Supreme Court's rulings in CIT Vs. Balbir Singh Maini and Suraj Lamp & Industries Pvt. Ltd. Vs. State of Haryana, which clarified that ownership requires possession of the property. The Madras High Court's decision in Dr. P.K. Vasanthi Rangarajan Vs. CIT was also considered, where it was held that owning a share in a property does not constitute absolute ownership. Court's Interpretation and Reasoning The Tribunal interpreted the term "own" in the context of Section 54F to mean having possession and control over the property. It emphasized that mere financial transactions or deposits with builders, without possession, do not constitute ownership for the purposes of Section 54F. Key Evidence and Findings The assessee owned a flat in Gurgaon, which was rented out, and had investments in other properties where possession was not yet transferred. Specifically, the Tribunal noted:
Application of Law to Facts The Tribunal applied the legal principles established in the cited precedents to the facts of the case. It concluded that since the assessee did not have possession of the properties at the time of the transfer of the original asset, these could not be considered as owned properties under Section 54F. Treatment of Competing Arguments The Department argued, based on the Pune Tribunal's decision in Gopal D. Shetty Vs. ITO, that the term "own" should be broadly interpreted. However, the Tribunal distinguished this case by noting the factual differences, particularly the lack of possession in the present case. Conclusions The Tribunal concluded that the assessee was not the owner of more than one house property on the date of the transfer of the original capital asset. Therefore, the assessee was entitled to the exemption under Section 54F. SIGNIFICANT HOLDINGS The Tribunal held that the assessee's claim for exemption under Section 54F was valid. It emphasized the necessity of possession for ownership, aligning with the Supreme Court's interpretation. The Tribunal allowed the assessee's grounds regarding the exemption claim. "We hold that the assessee was not owning more than one house property on the date of transfer of original capital asset and accordingly would be entitled for claim of exemption under section 54F of the Act in the sum of Rs. 3,83,55,102/-." The Tribunal also addressed the penalty proceedings under Section 270A, noting that since the assessee was granted relief on the merits, the penalty proceedings could not stand. In conclusion, the Tribunal partly allowed the appeal, granting the exemption under Section 54F and dismissing the penalty proceedings.
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