2025 (4) TMI 133 - AT - Income Tax

Denial of benefit of section 54F - property sold by the assessee in the year under consideration being a residential property - sale of a property registered as residential but used for commercial purposes - only contention is that said property was being let out to Bank ever since 2009 and from its user it could not be said that the property was residential in nature - HELD THAT - As the conditions as prescribed in sections 54 and 54F of the Act are similar except that in section 54 of the Act condition prescribed is w.r.t. investment of capital gain only and whereas in section 54F of the Act it is investment of net consideration that way rather by choosing exemption u/s. 54F of the Act the assessee taken a higher burden of investment. It is observed that the fact that the assessee complied with the provisions of section 54F of the Act is nowhere under challenge hence there is no need to refer the matter back to the file of the Ld. CIT (A). Moreover the first appellate authority was under legal obligation to decide the alternate ground taken by the assessee (Who is fulfilling all the conditions otherwise). In view of this the AO is directed to allow the claim of the assessee u/s. 54 of the Act after appropriate working is done considering the relevant figures involved. This ground raised by the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the assessee was entitled to claim exemptions under Section 54F of the Income Tax Act for the sale of a property registered as residential but used for commercial purposes.
Whether the assessee could alternatively claim exemptions under Section 54 of the Act, despite not initially claiming it before the Assessing Officer or the Commissioner of Income Tax (Appeals).
The validity of the addition of Rs. 2,94,843/- on account of interest on refund for the Assessment Year 2009-10.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption under Section 54F of the Income Tax Act

Relevant legal framework and precedents: Section 54F provides tax exemptions on capital gains arising from the sale of long-term capital assets, other than residential property, if the gains are invested in a new residential property.
Court's interpretation and reasoning: The Tribunal noted that the property was registered as residential, and the assessee had declared income from it under "Income from House Property." Despite its commercial use, the property was never officially converted to commercial status.
Key evidence and findings: The property was let out to a bank, but the sale deed described it as residential. The assessee did not obtain permission for conversion to commercial use.
Application of law to facts: The Tribunal concluded that since the property was residential, Section 54F exemptions were not applicable.
Treatment of competing arguments: The assessee argued that the property's use should determine its nature, but the Tribunal upheld the registration status as decisive.
Conclusions: The Tribunal agreed with lower authorities that Section 54F exemptions were not applicable.

Issue 2: Alternative claim under Section 54 of the Income Tax Act

Relevant legal framework and precedents: Section 54 provides exemptions on capital gains from the sale of residential property if invested in a new residential property.
Court's interpretation and reasoning: Although the assessee did not initially claim this exemption, the Tribunal noted that the conditions for Section 54 were similar to those of Section 54F, except for the investment criteria.
Key evidence and findings: The Tribunal found that the assessee had met the investment conditions under Section 54F, which implied compliance with Section 54 requirements.
Application of law to facts: The Tribunal decided that the assessee should be allowed to claim under Section 54, as the conditions were met.
Treatment of competing arguments: The Tribunal noted that the appellate authority should have considered this alternative claim, even if not initially raised.
Conclusions: The Tribunal directed the Assessing Officer to allow the exemption under Section 54, subject to verification of figures.

Issue 3: Addition of Rs. 2,94,843/- on account of interest on refund

Relevant legal framework and precedents: The addition was based on interest received on a refund for a previous assessment year.
Court's interpretation and reasoning: The Tribunal noted that the assessee did not contest the receipt of interest.
Key evidence and findings: The assessee withdrew the ground challenging this addition.
Application of law to facts: The Tribunal upheld the addition as the ground was withdrawn.
Treatment of competing arguments: No competing arguments were presented as the ground was withdrawn.
Conclusions: The Tribunal rejected the ground related to the interest addition.

3. SIGNIFICANT HOLDINGS

Core principles established: The nature of a property for tax exemption purposes is determined by its registration status rather than its use. Taxpayers may claim alternative exemptions if the conditions are met, even if not initially claimed.
Final determinations on each issue: The Tribunal upheld the denial of Section 54F exemptions but allowed the claim under Section 54. The addition of interest on refund was upheld due to withdrawal of the challenge.

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