2015 (2) TMI 1100 - AT - Income Tax

Assessees granted exemption under Section 54 for new residential flats received

Vilma Mary Pereira & Mr. Peter Savio Pereira Versus. ITO 19 (3) (3)

The Tribunal concluded that the assessees were entitled to the deduction under Section 54 of the Income Tax Act for the new residential flats received as ... Disallowance of claim of deduction u/s.54(1) in respect of residential flats acquired by the assessees in consideration of old house sold to the builder - Held that:- It is clear from the above that residential house was given to the assessee in consideration of the sale of old house. The sale consideration was partly received in cash and partly in the form of new flats to be constructed on the plot of old house sold by assessee. The new flats agreed to be given to assessee amounts to investment by assessee in residential house. Therefore, the AO was not justified in adding back the additional consideration given in the form of allotment of three flats by declining claim of deduction u/s.54 of the I.T.Act. In the present case before us, the assessee has purchased/constructed the new residential property and paid the consideration equivalent of price by payment in kind. Therefore, the assessee is entitled for exemption u/s.54 of I.T.Act, 1961 in respect of these flats. An issue was also raised by the AO with regard to sharing of 3 flats between the co-owners of the property and the exemption u/s.54 allowable in case of investment in one residential flat only. In this regard, we found that the details of allocation of area of new residential property between co-owners is already on record of the AO as well as in the valuation report. Furthermore, the co-owner will get the area according to their ratio in the new residential property. Since flat no.301 & 302 are situated in the same floor and adjacent to each other and will be treated as one single residential unit for the purpose of claiming exemption u/s.54. Thus we do not find any merit in the action of the AO for decline of claim of deduction u/s.54 in respect of residential flats allotted by builder in consideration of sale of old house. - Decided in favour of assessee Issues Involved:1. Disallowance of claim of deduction under Section 54(1) of the I.T. Act.2. Treatment of additional consideration in the form of new flats.3. Compliance with conditions laid down in Section 54.4. Allocation of new residential property between co-owners.5. Definition and interpretation of the term 'purchase' under Section 54.Issue-Wise Detailed Analysis:1. Disallowance of Claim of Deduction under Section 54(1):The common grievance in both appeals pertains to the disallowance of the claim of deduction under Section 54(1) concerning residential flats acquired by the assessees in consideration of an old house sold to a builder. The Assessing Officer (A.O.) observed that the additional consideration in the form of new flats was not included in the total consideration for computing Long Term Capital Gains (LTCG). The A.O. held that the new flats and car parking spaces received by the assessee were additional consideration and not eligible for exemption under Section 54 since they were not purchased or constructed by the assessee within the stipulated period.2. Treatment of Additional Consideration in the Form of New Flats:The A.O. argued that the new flats received should be treated as additional consideration for the sale of the old property. The A.O. contended that the flats were neither purchased nor constructed by the assessee, thus not fulfilling the conditions for exemption under Section 54. The A.O. added the market value of the new flats to the total consideration for the sale of the property.3. Compliance with Conditions Laid Down in Section 54:The A.O. emphasized that for availing exemption under Section 54, the assessee must have purchased a new flat one year before or two years after the date of transfer or constructed a new residential house within three years from the date of transfer. The A.O. held that the flats received as additional consideration did not meet these conditions, thereby denying the exemption.4. Allocation of New Residential Property Between Co-Owners:An issue was raised regarding the sharing of new flats between the co-owners and the exemption under Section 54 allowable for investment in one residential flat only. The allocation of new residential property was detailed, showing the ratio and area allotted to each co-owner. The Tribunal found that the allocation was in line with the co-owners' respective shares and that adjacent flats on the same floor could be treated as a single residential unit for claiming exemption under Section 54.5. Definition and Interpretation of the Term 'Purchase' under Section 54:The Tribunal referred to the Supreme Court's definition of 'purchase' in the case of CIT vs. T.N. Aravinda Reddy, which includes buying for a price or equivalent of price by payment in kind or adjustment towards an old debt. The Tribunal held that the assessee had effectively 'purchased' the new residential property by paying the consideration in kind, thereby fulfilling the conditions for exemption under Section 54.Conclusion:The Tribunal concluded that the residential house given to the assessee in consideration of the sale of the old house amounted to an investment in a new residential house. The Tribunal found that the A.O. was not justified in adding back the additional consideration and denying the deduction under Section 54. The Tribunal also addressed the issue of allocation between co-owners, finding that adjacent flats could be treated as a single residential unit. Consequently, the appeals of both assessees were allowed, granting them the exemption under Section 54 for the new residential flats received.